Econometric and statistical methods

• Deriving Longer-Term Inflation Expectations and Inflation Risk Premium Measures for Canada

  Staff Discussion Paper 2024-9 Bruno Feunou, Zabi Tarshi

  We present two models for long-term inflation expectations and inflation risk premiums for Canada.

  Content Type(s): Staff research, Staff discussion papers Research Topic(s): Econometric and statistical methods JEL Code(s): C, C5, C58, E, E4, E43, E47, G, G1, G12

• The Output-Inflation Trade-off in Canada

  Staff Discussion Paper 2024-7 Stefano Gnocchi, Fanny McKellips, Rodrigo Sekkel, Laure Simon, Yinxi Xie, Yang Zhang

  We explain how the Bank of Canada’s policy models capture the trade-off between output and inflation in Canada. We provide new estimates of the trade-off and contrast them with those in the Bank’s macroeconomic models.

  Content Type(s): Staff research, Staff discussion papers Research Topic(s): Business fluctuations and cycles, Econometric and statistical methods, Inflation and prices, Monetary policy transmission JEL Code(s): E, E3, E31, E5, E52

• Non-Parametric Identification and Testing of Quantal Response Equilibrium

  Staff Working Paper 2024-24 Johannes Hoelzemann, Ryan Webb, Erhao Xie

  We show that the utility function and the error distribution are non-parametrically over-identified under Quantal Response Equilibrium (QRE). This leads to a simple test for QRE. We illustrate our method in a Monte Carlo exercise and a laboratory experiment.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Econometric and statistical methods, Economic models JEL Code(s): C, C1, C14, C5, C57, C9, C92

• The Role of Beliefs in Entering and Exiting the Bitcoin Market

  Staff Working Paper 2024-22 Daniela Balutel, Christopher Henry, Jorge Vásquez, Marcel Voia

  We develop a model that links investors’ decisions to enter or exit the Bitcoin market with their beliefs about the survival of Bitcoin. Empirical testing using Canadian data reveals that beliefs strongly influence both entries and exits, and this impact varies with time and ownership status.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Bank notes, Digital currencies and fintech, Econometric and statistical methods JEL Code(s): D, D8, D83, E, E4, E41, O, O3, O33

• Decomposing Systemic Risk: The Roles of Contagion and Common Exposures

  Staff Working Paper 2024-19 Grzegorz Halaj, Ruben Hipp

  We examine systemic risks within the Canadian banking sector, decomposing them into three contribution channels: contagion, common exposures, and idiosyncratic risk. Through a structural model, we dissect how interbank relationships and market conditions contribute to systemic risk, providing new insights for financial stability.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Econometric and statistical methods, Economic models, Financial institutions, Financial stability JEL Code(s): C, C3, C32, C5, C51, G, G2, G21, L, L1, L14

• Parallel Tempering for DSGE Estimation

  Staff Working Paper 2024-13 Joshua Brault

  I develop a population-based Markov chain Monte Carlo algorithm known as parallel tempering to estimate dynamic stochastic general equilibrium models. Parallel tempering approximates the posterior distribution of interest using a family of Markov chains with tempered posteriors.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Econometric and statistical methods, Economic models JEL Code(s): C, C1, C11, C15, E, E1, E10

• Benchmarks for assessing labour market health: 2024 update

  Staff Analytical Note 2024-8 Erik Ens, Alexander Lam, Kurt See, Gabriela Galassi

  We assess the health of the Canadian labour market. We find that it has seen gradual but material easing since 2023, amid some signs of structural changes.

  Content Type(s): Staff research, Staff analytical notes Research Topic(s): Business fluctuations and cycles, Econometric and statistical methods, Labour markets, Monetary policy JEL Code(s): E, E2, J, J2, J3, J6

• U.S. Macroeconomic News and Low-Frequency Changes in Small Open Economies’ Bond Yields

  Staff Working Paper 2024-12 Bingxin Ann Xing, Bruno Feunou, Morvan Nongni-Donfack, Rodrigo Sekkel

  Using two complementary approaches, we investigate the importance of U.S. macroeconomic news in driving low-frequency fluctuations in the term structure of interest rates in Canada, Sweden and the United Kingdom. We find that U.S. macroeconomic news is particularly important to explain changes in the expectation components of the nominal, real and break-even inflation rates of small open economies.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Central bank research, Econometric and statistical methods JEL Code(s): E, E4, E43, E44, E47, G, G1, G14

• Forecasting Recessions in Canada: An Autoregressive Probit Model Approach

  Staff Working Paper 2024-10 Antoine Poulin-Moore, Kerem Tuzcuoglu

  We forecast recessions in Canada using an autoregressive (AR) probit model. The results highlight the short-term predictive power of the US economic activity and suggest that financial indicators are reliable predictors of Canadian recessions. In addition, the suggested model meaningfully improves the ability to forecast Canadian recessions, relative to a variety of probit models proposed in the Canadian literature.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Business fluctuations and cycles, Econometric and statistical methods JEL Code(s): C, C5, C51, C53, E, E3, E32

• COVID-19 Hasn’t Killed Merchant Acceptance of Cash: Results from the 2023 Merchant Acceptance Survey

  Staff Discussion Paper 2024-2 Angelika Welte, Katrina Talavera, Liang Wang, Joy Wu

  The Bank of Canada’s Merchant Acceptance Survey finds that 96% of small and medium-sized businesses in Canada accepted cash in 2023. Acceptance of debit and credit cards has increased to 89%, and acceptance of digital payments has also increased. However, Canada is far from being a cashless society.

  Content Type(s): Staff research, Staff discussion papers Research Topic(s): Bank notes, Digital currencies and fintech, Econometric and statistical methods JEL Code(s): C, C8, D, D2, D22, E, E4, L, L2