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407 Results

November 9, 2023

Getting used to higher interest rates

Speech summary Carolyn Rogers Advocis Vancouver Vancouver, British Columbia
Senior Deputy Governor Carolyn Rogers talks about why interest rates could settle at a higher level than Canadians are used to and why preparing early for that possible outcome is important.

Borrow Now, Pay Even Later: A Quantitative Analysis of Student Debt Payment Plans

Staff Working Paper 2023-54 Michael Boutros, Nuno Clara, Francisco Gomes
We investigate alternative student debt contracts that defer payments and ease the burden of student loans on US households by preserving disposable income early in borrowers’ lives. Our model shows substantial welfare gains from these contracts relative to existing plans and gains similar to the Biden administration's proposals but with a significantly lower cost.

Estimating the Appropriate Quantity of Settlement Balances in a Floor System

Staff Discussion Paper 2023-26 Narayan Bulusu, Matthew McNeely, Kaetlynd McRae, Jonathan Witmer
This paper presents two complementary approaches to estimating the appropriate quantity of settlement balances needed to effectively operate monetary policy under a floor system in Canada.

Predicting Changes in Canadian Housing Markets with Machine Learning

Staff Discussion Paper 2023-21 Johan Brannlund, Helen Lao, Maureen MacIsaac, Jing Yang
We apply two machine learning algorithms to forecast monthly growth of house prices and existing homes sales in Canada. Although the algorithms can sometimes outperform a linear model, the improvement in forecast accuracy is not always statistically significant.

Tattle-tails: Gauging downside risks using option prices

Staff Analytical Note 2023-13 Greg Adams, Maksym Tupis
Options markets offer unique insights into the changing risks different assets face, which helps us better understand the broader risks to the Canadian economy. We show how option prices help reveal that investors did not anticipate large downside risks to either major Canadian banks or economic growth during the March 2023 financial sector system stress, a period when policy-makers and investors were unsure of what the future held for Canada’s economy.

Do hedge funds support liquidity in the Government of Canada bond market?

Staff Analytical Note 2023-11 Jabir Sandhu, Rishi Vala
While Government of Canada bond transactions of hedge funds are typically in the opposite direction to those of other market participants, during the peak period of market turmoil in March 2020, hedge funds sold these bonds, just as other market participants did. This shows that hedge funds can at times contribute to one-sided markets and amplify declines in market liquidity.

It takes a panel to predict the future: What the stock market says about future economic growth in Canada

Staff Analytical Note 2023-9 Greg Adams, Jean-Sébastien Fontaine
Valuation ratios in the Canadian stock market can help reveal investors’ expectations about future economic growth because the impact of economic growth on valuation ratios can vary across industries. We find that this variation helps produce accurate forecasts of future growth of real gross domestic product in Canada. The forecasts from our model declined by just over 3 percentage points between January 2022 and February 2023—a period when the Bank of Canada rapidly increased the overnight rate. As well, we find that interest-rate-sensitive industries had an outsized contribution to this expected slowdown in growth. 

Crowdfunding and Risk

Staff Working Paper 2023-28 David Cimon
Crowdfunding may enable unique products to reach the consumer market. I model a crowdfunding technology that publicly screens consumer demand early in the production process. In this model, entrepreneurs like crowdfunding for risky projects where demand is uncertain, but not for large, safe projects or for projects where production costs are uncertain.
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