Choosing a well-designed framework for fiscal and monetary policies is a challenge for economic authorities. Although they have chosen the same objectives to promote economic growth—price stability and fiscal sustainability—the Canadian and European economic authorities have adopted...

This paper surveys the literature on the zero bound on the nominal interest rate. It addresses questions ranging from the conditions under which the zero bound on the nominal interest rate might occur to policy options to avoid or use to exit from such a situation. We discuss literature that...

The Bank of Canada Global Economy Model (BoC-GEM) is used to examine the effect of various types of discretionary fiscal policies on different regions of the globe. The BoC-GEM is a microfounded dynamic stochastic general-equilibrium global model with six regions, multiple sectors, and...

The authors investigate the implications of house-price bubbles for the optimal inflation-target horizon using a dynamic general-equilibrium model with credit frictions, house-price bubbles, and small open-economy features. They find that, given the distribution of shocks and inflation...

Following theory, we check that funding risk connects illiquidity, volatility and returns in the cross-section of stocks. We show that the illiquidity and volatility of stocks increase with funding shocks, while contemporaneous returns decrease with funding shocks. The dispersions of...

Recent asset pricing models of limits to arbitrage emphasize the role of funding conditions faced by financial intermediaries. In the US, the repo market is the key funding market. Then, the premium of on-the-run U.S. Treasury bonds should share a common component with risk premia in other...

Recent asset pricing models of limits to arbitrage emphasize the role of funding conditions faced by financial intermediaries. In the US, the repo market is the key funding market. Then, the premium of on-the-run U.S. Treasury bonds should share a common component with risk premia in other...

Cette etude examine les effets de l'endettement du Canada sur les taux d'interet reels de long terme au Canada a l'aide de la methode des VECM (Vector Error Correction Model).

Domestic public debt issued by emerging markets has risen significantly relative to international debt in recent years. Some recent empirical evidence also suggests that sovereigns have defaulted differentially on debt held by domestic and external creditors. Standard models of sovereign debt,...

As part of managing a debt portfolio, debt managers face the challenging task of choosing a strategy that minimizes the cost of debt, subject to limitations on risk. The Bank of Canada provides debt-management analysis and advice to the Government of Canada to assist in this task, with the...