Interest rates
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The Neutral Rate of Interest in Canada
A measure of the neutral policy interest rate can be used to gauge the stance of monetary policy. We define the neutral rate as the real policy rate consistent with output at its potential level and inflation equal to target after the effects of all cyclical shocks have dissipated. -
Search Frictions, Financial Frictions and Labour Market Fluctuations in Emerging Markets
This paper examines the role of the extensive and intensive margins of labour input in the context of a business cycle model with a financial friction. We document significant variation in the hours worked per worker for many emerging-market economies. Both employment and hours worked per worker are positively correlated with each other and with output. -
Improving Overnight Loan Identification in Payments Systems
Information on the allocation and pricing of over-the-counter (OTC) markets is scarce. Furfine (1999) pioneered an algorithm that provides transaction-level data on the OTC interbank lending market. -
Bond Risk Premia and Gaussian Term Structure Models
Cochrane and Piazzesi (2005) show that (i) lagged forward rates improve the predictability of annual bond returns, adding to current forward rates, and that (ii) a Markovian model for monthly forward rates cannot generate the pattern of predictability in annual returns. -
Funding Advantage and Market Discipline in the Canadian Banking Sector
We employ a comprehensive data set and a variety of methods to provide evidence on the magnitude of large banks’ funding advantage in Canada, and on the extent to which market discipline exists across different securities issued by the Canadian banks. -
A New Linear Estimator for Gaussian Dynamic Term Structure Models
This paper proposes a novel regression-based approach to the estimation of Gaussian dynamic term structure models that avoids numerical optimization. -
Real-financial Linkages through Loan Default and Bank Capital
Many studies in macroeconomics argue that financial frictions do not amplify the impacts of real shocks. This finding is based on models without endogenous default on loans and bank capital. Using a model featuring endogenous interactions between firm default and bank capital, this paper revisits the propagation mechanisms of real and financial shocks. -
Estimating the Policy Rule from Money Market Rates when Target Rate Changes Are Lumpy
Most central banks effect changes to their target or policy rate in discrete increments (e.g., multiples of 0.25%) following public announcements on scheduled dates. Still, for most applications, researchers rely on the assumption that the policy rate changes linearly with economic conditions and they do not distinguish between dates with and without scheduled announcements. -
Consumer Interest Rates and Retail Mutual Fund Flows
This paper documents a link between the real and financial sides of the economy. We find that retail equity mutual fund flows in Canada are negatively related to current and past changes in a component of the prime and 5-year mortgage rates that is uncorrelated with government rates.