Can monetary policy be used to promote financial stability? We answer this question by estimating the impact of a monetary policy shock on private-sector leverage and the likelihood of a financial crisis. Impulse responses obtained from a panel VAR model of 18 advanced countries suggest that the...

We present a two-country model featuring risky lending and cross-border interbank market frictions. We find that (i) the strength of the financial accelerator, when applied to banks operating under uncertainty in an interbank market, will critically depend on the economic and financial structure...

There is widespread agreement that, in the United States, higher house prices raise consumption via collateral or possibly wealth effects. The presence of similar channels in Canada would have important implications for monetary policy transmission. We trace the impact of shifts in non-price...

We study the causal effect of mortgage rate changes on consumer spending, debt repayment, and defaults during an expansionary and a contractionary monetary policy episode in Canada. Our identification takes advantage of the fact that the interest rates of short-term fixed-rate mortgages (the...

The Canadian overnight repo market persistently shows signs of latent funding pressure around month-end periods. Both the overnight repo rate and Bank of Canada liquidity provision tend to rise in these windows. This paper proposes three non-mutually exclusive hypotheses to explain this...

Do financial constraints amplify or dampen the transmission of monetary policy to the real economy? To answer this question, we propose a simple empirical strategy that combines (i) firm-level employment and balance sheet data, (ii) identified monetary policy shocks and (iii) survey data on...

Interest rates in China are composed of a mix of both market-determined interest rates (interbank rates and bond yields), and regulated interest rates (retail lending and deposit rates), reflecting China's gradual process of interest rate liberalization. This paper investigates the main drivers...

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. This is a...

This paper contributes to the ongoing debate about the changing dynamics in the money market rates after 2007. It aims to analyse the interest rate channel of monetary policy transmission until the federal funds target rate reached the zero lower bound. A set of different model explains both...

Forward guidance is one of the policy tools that a central bank can implement if it seeks to provide additional monetary stimulus when it is operating at the effective lower bound (ELB) on interest rates. It became more widely used during and after the global financial crisis. This paper reviews...