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The global financial crisis highlighted that the financial system can be most vulnerable when it seems most stable. This paper models non-linear dynamics in banking. Small shocks can lead from an equilibrium with few bank defaults straight to a full freeze. The mechanism is based on amplification between adverse selection on banks' funding market and moral hazard in bank monitoring. Our results imply trade-offs between regulators' microprudential desire to shield individual weak banks and the macroprudential consequences of doing so. Moreover, limiting bank reliance on wholesale funding always reduces systemic risk, but limiting the correlation between bank portfolios does not.

Banks and banking --- Bank liquidity --- Finance --- Financial crises --- Crashes, Financial --- Crises, Financial --- Financial crashes --- Financial panics --- Panics (Finance) --- Stock exchange crashes --- Stock market panics --- Crises --- Liquidity (Economics) --- Agricultural banks --- Banking --- Banking industry --- Commercial banks --- Depository institutions --- Financial institutions --- Money --- Risk management --- Econometric models. --- Prevention. --- Banks and Banking --- Finance: General --- Money and Monetary Policy --- Financial Crises --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- General Financial Markets: Government Policy and Regulation --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Monetary economics --- Systemic risk --- Bank deposits --- Bank credit --- Financial risk management --- Credit

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The waning of the commodity boom places renewed emphasis on manufacturing as an engine for Canadian growth. However, Canadian manufacturing exports have been relatively stagnant since 2000. While the exchange rate depreciation over the past two years has energized export growth, the response has not been as strong as would have been expected given the size of the depreciation. More fundamental issues appear to be impeding the growth of the Canadian manufacturing sector. This study analyzes the structural factors behind export competitiveness by using unique Canadian data on exports, which are disaggregated both by province and by product. Matching exports to similarly disaggregated data on R&D, the capital stock and other supply-side variables, we find that these variables significantly affect export growth, beyond the impact of the exchange rate. In particular, investment in R&D, capital infrastructure and vocational training improves innovation and production capacity. These results are robust to a factor-augmented approach that controls for multicollinearity.

Exports --- Manufacturing industries --- Panel analysis. --- Panel studies --- Social sciences --- Statistics --- International trade --- Methodology --- Exports and Imports --- Labor --- Public Finance --- Industries: Manufacturing --- Trade: General --- Empirical Studies of Trade --- Economic Growth of Open Economies --- National Government Expenditures and Related Policies: Infrastructures --- Other Public Investment and Capital Stock --- Innovation --- Research and Development --- Technological Change --- Intellectual Property Rights: General --- Industry Studies: Manufacturing: General --- National Government Expenditures and Related Policies: General --- Labor Economics Policies --- International economics --- Public finance & taxation --- Labour --- income economics --- Export performance --- Manufacturing --- Public expenditure review --- Job training --- Economic sectors --- Expenditure --- Expenditures, Public --- Occupational training --- Canada --- Income economics

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The Departmental Paper Series presents research by IMF staff on issues of broad regional or cross-country interest. The views expressed in this paper are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Banks and banking. --- Fiscal policy.

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Where do we go from here? The Fall-Winter 2020 issue of the IMF Research Perspectives considers this question and analyzes the impact of the COVID-19 pandemic. The research showcased in this issue looks at the history of social unrest in the aftermaths of pandemics, discusses the inequalities of telework, places COVID and lending conditions under the microscope, and examines how economic activity has been shaped by people’s reaction to the virus and the resulting policy measures.

Covid-19 --- Economics --- Finance --- Finance: General --- International Agreements and Observance --- International Economics --- International institutions --- International Organizations --- Investment Decisions --- Liquidity --- Macroeconomics --- Portfolio Choice