{"id":26243,"date":"2014-09-09T19:38:27","date_gmt":"2014-09-10T00:38:27","guid":{"rendered":"http:\/\/prefblog.com\/?p=26243"},"modified":"2014-09-09T19:38:27","modified_gmt":"2014-09-10T00:38:27","slug":"september-9-2014","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=26243","title":{"rendered":"September 9, 2014"},"content":{"rendered":"

The Bank for International Settlements has released<\/a> a paper by Sami Alpanda, Gino Cateau and C\u00e9saire Meh, all of the Bank of Canada, titled A policy model to analyze macroprudential regulations and monetary policy<\/a>:<\/p>\n

We construct a small-open-economy, New Keynesian dynamic stochastic general-equilibrium model with real-financial linkages to analyze the effects of financial shocks and macroprudential policies on the Canadian economy. Our model has four key features. First, it allows for non-trivial interactions between the balance sheets of households, firms and banks within a unified framework. Second, it incorporates a risk-taking channel by allowing the risk appetite of investors to depend on aggregate economic activity and funding conditions. Third, it incorporates long-term debt by allowing households and businesses to pay back their stock of debt over multiple periods. Fourth, it incorporates targeted and broader macroprudential instruments to analyze the interaction between macroprudential and monetary policy. The model also features nominal and real rigidities, and is calibrated to match dynamics in Canadian macroeconomic and financial data. We study the transmission of monetary policy and financial shocks in the model economy, and analyze the effectiveness of various policies in simultaneously achieving macroeconomic and financial stability. We find that, in terms of reducing household debt, more targeted tools such as loan-to-value regulations are the most effective and least costly, followed by bank capital regulations and monetary policy, respectively.<\/p><\/blockquote>\n

This conclusion is supported by:<\/p>\n

Using our model, we \u0085find that targeted policies such as LTV regulations are the most effective and least costly, followed by bank capital regulations and monetary policy, respectively. In particular, a 5 percentage point (pp) tightening in regulatory LTV decreases household debt by about 7.6 per cent at the peak, while its output impact is about 0.7 per cent. In contrast, a 1 pp increase in capital requirements reduces household debt by about 1.4 per cent and reduces output by about 0.35 per cent at the peak. Hence, an increase of about 2 pp in bank capital would have the same impact on output as a 5 pp reduction in LTV, but its impact on household debt would be about half of LTV at the peak. Similarly, a 100 basis point (bp) temporary increase in the policy rate reduces household debt by about 0.5 per cent at the peak, but this comes at an output cost of about 0.4 per cent, o\u00a4ering an even worse trade-o\u00a4 than capital requirements in terms of reducing household debt.<\/p><\/blockquote>\n

I’ll admit to being suspicious of this result, but without fully understanding and playing with the model I must also admit that I can’t explain why. I don’t like such finely targeted government policies, with some Pooh-Bah in Ottawa pronouncing on whether a citizen is permitted to buy a house or not. What if they get it wrong? They always do, eventually. Unaddressed in the paper is the effect of CMHC policies, which, in expanding the amount of mortgage insurance outstanding to a gargantuan extent, has thoroughly distorted the market, leading to today’s very high (although not necessarily excessive) debt levels and very high (although not necessarily excessive) housing prices.<\/p>\n

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 3bp, FixedResets off 7bp and DeemedRetractibles gaining 2bp. Volatility was average. Volume was low.<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices<\/strong>
Values are provisional and are finalized monthly<\/td>\n<\/tr>\n
Index<\/td>\nMean
Current
Yield
(at bid)<\/td>\n		Median
YTW<\/td>\n		Median
Average
Trading
Value<\/td>\n		Median
Mod Dur
(YTW)<\/td>\n		Issues<\/td>\nDay’s Perf.<\/td>\nIndex Value<\/td>\n<\/tr>\n
Ratchet<\/td>\n0.00 %<\/td>\n0.00 %<\/td>\n0<\/td>\n0.00<\/td>\n0<\/td>\n-0.1659 %<\/td>\n2,637.8<\/td>\n<\/tr>\n
FixedFloater<\/td>\n4.16 %<\/td>\n3.41 %<\/td>\n25,134<\/td>\n18.55<\/td>\n1<\/td>\n-0.3923 %<\/td>\n4,173.0<\/td>\n<\/tr>\n
Floater<\/td>\n2.91 %<\/td>\n3.07 %<\/td>\n45,746<\/td>\n19.48<\/td>\n4<\/td>\n-0.1659 %<\/td>\n2,727.7<\/td>\n<\/tr>\n
OpRet<\/td>\n4.05 %<\/td>\n-0.67 %<\/td>\n97,938<\/td>\n0.08<\/td>\n1<\/td>\n0.0395 %<\/td>\n2,728.2<\/td>\n<\/tr>\n
SplitShare<\/td>\n4.28 %<\/td>\n3.80 %<\/td>\n115,889<\/td>\n3.94<\/td>\n5<\/td>\n0.0521 %<\/td>\n3,153.8<\/td>\n<\/tr>\n
Interest-Bearing<\/td>\n0.00 %<\/td>\n0.00 %<\/td>\n0<\/td>\n0.00<\/td>\n0<\/td>\n0.0395 %<\/td>\n2,494.6<\/td>\n<\/tr>\n
Perpetual-Premium<\/td>\n5.46 %<\/td>\n0.41 %<\/td>\n74,441<\/td>\n0.09<\/td>\n20<\/td>\n0.1494 %<\/td>\n2,438.9<\/td>\n<\/tr>\n
Perpetual-Discount<\/td>\n5.21 %<\/td>\n5.13 %<\/td>\n105,153<\/td>\n15.22<\/td>\n16<\/td>\n0.0321 %<\/td>\n2,610.0<\/td>\n<\/tr>\n
FixedReset<\/td>\n4.24 %<\/td>\n3.71 %<\/td>\n181,617<\/td>\n8.40<\/td>\n74<\/td>\n-0.0666 %<\/td>\n2,565.3<\/td>\n<\/tr>\n
Deemed-Retractible<\/td>\n5.00 %<\/td>\n1.45 %<\/td>\n99,717<\/td>\n0.15<\/td>\n42<\/td>\n0.0180 %<\/td>\n2,566.8<\/td>\n<\/tr>\n
FloatingReset<\/td>\n2.62 %<\/td>\n0.00 %<\/td>\n74,741<\/td>\n0.08<\/td>\n6<\/td>\n-0.0653 %<\/td>\n2,533.0<\/td>\n<\/tr>\n<\/table>\n\n\n\n\n\n\n\n\n
Performance Highlights<\/strong><\/td>\n<\/tr>\n
Issue<\/td>\nIndex<\/td>\nChange<\/td>\nNotes<\/td>\n<\/tr>\n
FTS.PR.H<\/td>\nFixedReset<\/td>\n-1.48 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2044-09-09
\nMaturity Price : 20.70
\nEvaluated at bid price : 20.70
\nBid-YTW : 3.75 %<\/td>\n<\/tr>\n
PWF.PR.A<\/td>\nFloater<\/td>\n-1.11 %<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2044-09-09
\nMaturity Price : 20.52
\nEvaluated at bid price : 20.52
\nBid-YTW : 2.57 %<\/td>\n<\/tr>\n
IFC.PR.A<\/td>\nFixedReset<\/td>\n-1.03 %<\/td>\nYTW SCENARIO
\nMaturity Type : Hard Maturity
\nMaturity Date\t: 2025-01-31
\nMaturity Price : 25.00
\nEvaluated at bid price : 24.00
\nBid-YTW : 4.24 %<\/td>\n<\/tr>\n
IGM.PR.B<\/td>\nPerpetual-Premium<\/td>\n1.29 %<\/td>\nYTW SCENARIO
\nMaturity Type : Call
\nMaturity Date\t: 2017-12-31
\nMaturity Price : 25.25
\nEvaluated at bid price : 26.00
\nBid-YTW : 5.09 %<\/td>\n<\/tr>\n
MFC.PR.F<\/td>\nFixedReset<\/td>\n1.64 %<\/td>\nYTW SCENARIO
\nMaturity Type : Hard Maturity
\nMaturity Date\t: 2025-01-31
\nMaturity Price : 25.00
\nEvaluated at bid price : 22.89
\nBid-YTW : 4.25 %<\/td>\n<\/tr>\n<\/table>\n\n\n\n\n\n\n\n\n\n\n
Volume Highlights<\/strong><\/td>\n<\/tr>\n
Issue<\/td>\nIndex<\/td>\nShares
Traded<\/td>\n		Notes<\/td>\n<\/tr>\n
TD.PF.B<\/td>\nFixedReset<\/td>\n194,678<\/td>\nRBC crossed blocks of 49,600 and 50,000, both at 25.12.
\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2044-09-09
\nMaturity Price : 23.21
\nEvaluated at bid price : 25.11
\nBid-YTW : 3.74 %<\/td>\n<\/tr>\n
ENB.PF.A<\/td>\nFixedReset<\/td>\n44,113<\/td>\nRBC crossed 40,000 at 25.05.
\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2044-09-09
\nMaturity Price : 23.15
\nEvaluated at bid price : 25.02
\nBid-YTW : 4.19 %<\/td>\n<\/tr>\n
BAM.PR.P<\/td>\nFixedReset<\/td>\n39,868<\/td>\nCalled for redemption September 30<\/a>.
\nYTW SCENARIO
\nMaturity Type : Call
\nMaturity Date\t: 2014-10-30
\nMaturity Price : 25.00
\nEvaluated at bid price : 25.41
\nBid-YTW : 3.20 %<\/td>\n<\/tr>\n
GWO.PR.S<\/td>\nDeemed-Retractible<\/td>\n36,400<\/td>\nYTW SCENARIO
\nMaturity Type : Hard Maturity
\nMaturity Date\t: 2025-01-31
\nMaturity Price : 25.00
\nEvaluated at bid price : 25.53
\nBid-YTW : 4.98 %<\/td>\n<\/tr>\n
GWO.PR.N<\/td>\nFixedReset<\/td>\n31,160<\/td>\nCIBC crossed 18,000 at 21.77.
\nYTW SCENARIO
\nMaturity Type : Hard Maturity
\nMaturity Date\t: 2025-01-31
\nMaturity Price : 25.00
\nEvaluated at bid price : 21.70
\nBid-YTW : 4.63 %<\/td>\n<\/tr>\n
TRP.PR.B<\/td>\nFixedReset<\/td>\n27,332<\/td>\nYTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2044-09-09
\nMaturity Price : 19.70
\nEvaluated at bid price : 19.70
\nBid-YTW : 3.70 %<\/td>\n<\/tr>\n
There were 20 other index-included issues trading in excess of 10,000 shares.<\/td>\n<\/tr>\n<\/table>\n\n\n\n\n\n\n\n\n\n
Wide Spread Highlights<\/strong><\/td>\n<\/tr>\n
Issue<\/td>\nIndex<\/td>\nQuote Data and Yield Notes<\/td>\n<\/tr>\n
IFC.PR.A<\/td>\nFixedReset<\/td>\nQuote: 24.00 – 24.28
\nSpot Rate : 0.2800
\nAverage : 0.1802<\/p>\n

YTW SCENARIO
\nMaturity Type : Hard Maturity
\nMaturity Date\t: 2025-01-31
\nMaturity Price : 25.00
\nEvaluated at bid price : 24.00
\nBid-YTW : 4.24 %<\/td>\n<\/tr>\n

PVS.PR.C<\/td>\nSplitShare<\/td>\nQuote: 25.81 – 26.90
\nSpot Rate : 1.0900
\nAverage : 1.0096<\/p>\n

YTW SCENARIO
\nMaturity Type : Call
\nMaturity Date\t: 2015-12-10
\nMaturity Price : 25.50
\nEvaluated at bid price : 25.81
\nBid-YTW : 3.80 %<\/td>\n<\/tr>\n

TD.PR.T<\/td>\nFloatingReset<\/td>\nQuote: 25.35 – 25.61
\nSpot Rate : 0.2600
\nAverage : 0.1808<\/p>\n

YTW SCENARIO
\nMaturity Type : Call
\nMaturity Date\t: 2018-07-31
\nMaturity Price : 25.00
\nEvaluated at bid price : 25.35
\nBid-YTW : 2.06 %<\/td>\n<\/tr>\n

BAM.PR.X<\/td>\nFixedReset<\/td>\nQuote: 22.51 – 22.70
\nSpot Rate : 0.1900
\nAverage : 0.1233<\/p>\n

YTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2044-09-09
\nMaturity Price : 22.14
\nEvaluated at bid price : 22.51
\nBid-YTW : 4.01 %<\/td>\n<\/tr>\n

BAM.PR.M<\/td>\nPerpetual-Discount<\/td>\nQuote: 21.64 – 21.81
\nSpot Rate : 0.1700
\nAverage : 0.1111<\/p>\n

YTW SCENARIO
\nMaturity Type : Limit Maturity
\nMaturity Date\t: 2044-09-09
\nMaturity Price : 21.64
\nEvaluated at bid price : 21.64
\nBid-YTW : 5.60 %<\/td>\n<\/tr>\n

GWO.PR.N<\/td>\nFixedReset<\/td>\nQuote: 21.70 – 21.95
\nSpot Rate : 0.2500
\nAverage : 0.1918<\/p>\n

YTW SCENARIO
\nMaturity Type : Hard Maturity
\nMaturity Date\t: 2025-01-31
\nMaturity Price : 25.00
\nEvaluated at bid price : 21.70
\nBid-YTW : 4.63 %<\/td>\n<\/tr>\n<\/table>\n","protected":false},"excerpt":{"rendered":"

The Bank for International Settlements has released a paper by Sami Alpanda, Gino Cateau and C\u00e9saire Meh, all of the Bank of Canada, titled A policy model to analyze macroprudential regulations and monetary policy: We …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[15],"tags":[],"class_list":["post-26243","post","type-post","status-publish","format-standard","hentry","category-market-action"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/26243","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=26243"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/26243\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=26243"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=26243"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=26243"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}