Economic models

• A Horse Race of Alternative Monetary Policy Regimes Under Bounded Rationality

  Staff Discussion Paper 2022-4 Joel Wagner, Tudor Schlanger, Yang Zhang

  We introduce bounded rationality in a canonical New Keynesian model calibrated to match Canadian macroeconomic data since Canada’s adoption of inflation targeting. We use the model to quantitatively assess the macroeconomic impact of alternative monetary policy regimes.

  Content Type(s): Staff research, Staff discussion papers Research Topic(s): Central bank research, Economic models, Monetary policy framework, Monetary policy transmission JEL Code(s): E, E2, E27, E3, E4, E5, E52, E58

• Heterogeneity and Monetary Policy: A Thematic Review

  Staff Discussion Paper 2022-2 Felipe Alves, Christian Bustamante, Xing Guo, Katya Kartashova, Soyoung Lee, Thomas Michael Pugh, Kurt See, Yaz Terajima, Alexander Ueberfeldt

  The theory that rich economic diversity of businesses and households both affects and is shaped by economy-wide fluctuations has strong implications for monetary policy. This review places these insights in a Canadian context.

  Content Type(s): Staff research, Staff discussion papers Research Topic(s): Economic models, Monetary policy and uncertainty, Monetary policy transmission JEL Code(s): D, D2, D25, D3, D31, E, E2, E22, E24, E5, E50, E52

• Transition Scenarios for Analyzing Climate-Related Financial Risk

  Staff Discussion Paper 2022-1 Y.-H. Henry Chen, Erik Ens, Olivier Gervais, Hossein Hosseini Jebeli, Craig Johnston, Serdar Kabaca, Miguel Molico, Sergey Paltsev, Alex Proulx, Argyn Toktamyssov

  Climate transition scenarios clarify climate-related risks to our economy and financial system. This paper summarizes key results of Canada-relevant scenarios developed in a pilot project on climate risk by the Bank of Canada and the Office of the Superintendent of Financial Institutions.

  Content Type(s): Staff research, Staff discussion papers Research Topic(s): Climate change, Economic models, Financial stability, International topics JEL Code(s): C, C6, C68, D, D5, D58, E, E5, E50, O, O4, O44, P, P1, P18, Q, Q5, Q54

• News-Driven International Credit Cycles

  Staff Working Paper 2021-66 Galip Kemal Ozhan

  This paper examines the implications of positive news about future asset values that turn out to be incorrect at a later date in an open economy model with banking. The model captures the patterns of bank credit and current account dynamics in Spain between 2000 and 2010. The model finds that the use of unconventional policies leads to a milder bust.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Credit and credit aggregates, Economic models, Financial stability, Recent economic and financial developments, Sectoral balance sheet JEL Code(s): E, E4, E44, F, F3, F32, F4, F41, G, G1, G15, G2, G21

• Bitcoin Adoption and Beliefs in Canada

  Staff Working Paper 2021-60 Daniela Balutel, Christopher Henry, Jorge Vásquez, Marcel Voia

  Using an economic model as well as survey data from the Bank of Canada, we study what factors influence the adoption of Bitcoin in Canada.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Digital currencies and fintech, Econometric and statistical methods, Economic models JEL Code(s): D, D8, D83, O, O3, O33
• November 16, 2021

  Labour market uncertainties and monetary policy

  Remarks (delivered virtually) Lawrence L. Schembri Canadian Association for Business Economics Toronto, Ontario

  Deputy Governor Lawrence Schembri talks about changes to the labour market, and how the pandemic affected Canadian workers. He also discusses how the Bank is adapting labour market analysis tools to help guide monetary policy decisions that will support a more inclusive recovery.

  Content Type(s): Press, Speeches and appearances, Remarks Research Topic(s): Coronavirus disease (COVID-19), Economic models, Inflation targets, Labour markets, Monetary policy and uncertainty, Potential output
• November 16, 2021

  Measuring changes to the labour market

  Speech summary Lawrence L. Schembri Canadian Association for Business Economics Toronto, Ontario

  Deputy Governor Lawrence Schembri discusses how the Canadian labour market has changed during the pandemic. He explains why better tools to measure the health of the job market will help the Bank of Canada set monetary policy that supports the recovery.

  Content Type(s): Press, Speeches and appearances, Speech summaries Research Topic(s): Coronavirus disease (COVID-19), Economic models, Inflation targets, Labour markets, Monetary policy and uncertainty, Potential output

• Optimal Monetary Policy According to HANK

  Staff Working Paper 2021-55 Sushant Acharya, Edouard Challe, Keshav Dogra

  We study optimal monetary policy in an analytically tractable Heterogeneous Agent New Keynesian model. In the model, the central bank has an incentive to reduce consumption inequality in addition to keeping economic activity at its efficient level and inflation stable.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Economic models, Monetary policy JEL Code(s): E, E2, E21, E3, E30, E5, E52, E6, E62, E63

• The Bank of Canada’s “Horse Race” of Alternative Monetary Policy Frameworks: Some Interim Results from Model Simulations

  Staff Discussion Paper 2021-13 José Dorich, Rhys R. Mendes, Yang Zhang

  Bank of Canada staff are running a “horse race” of alternative monetary policy frameworks in the lead-up to 2021 renewal of the Bank’s monetary policy framework. This paper summarizes some interim results of model simulations from their research.

  Content Type(s): Staff research, Staff discussion papers Research Topic(s): Central bank research, Economic models, Inflation targets, Monetary policy, Monetary policy framework, Monetary policy transmission JEL Code(s): E, E2, E27, E3, E4, E5, E52, E58

• Stressed but not Helpless: Strategic Behaviour of Banks Under Adverse Market Conditions

  Staff Working Paper 2021-35 Grzegorz Halaj, Sofia Priazhkina

  Our stress-testing tool considers banks under stress that can strategically manage their balance sheets. Using confidential Canadian supervisory data, we assess whether bank behaviour to maximize shareholder value can amplify a hypothetical stress scenario.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Central bank research, Economic models, Financial institutions, Financial stability, Financial system regulation and policies JEL Code(s): C, C6, C63, C7, C72, G, G2, G21