Martin Kuncl

Welcome to my personal website.

I am a Principal Researcher at the Bank of Canada. I am both part of a team at the Canadian Economic Analysis Department (Projection division) and at the Economics and Financial Research Department. The views on this website are my own.

My research interests are monetary policy and its interaction with household indebtedness and macroprudential policies, and financial intermediation.

Curriculum Vitae


Monetary Policy and the Persistent Aggregate Effects of Wealth Redistribution (with Alexander Ueberfeldt) [ paper ] []

Monetary easing redistributes from savers, some of whom are retired and not adjusting labor supply, to borrowers who reduce their labor supply. This results in persistently lower aggregate labor and output. Hence the interaction of labor supply heterogeneity with heterogeneity in net nominal positions of households creates a monetary policy trade-off whereby short-term economic stimulus is followed by lower output over the medium term. The policy trade-off is stronger in economies with more nominal household debt and a larger wealth share of retired households but weakened by a more aggressive monetary policy stance and under price-level targeting.

        Journal of Monetary Economics, Accepted

Government Loan Guarantees, Market Liquidity and Lending Standards (with Toni Ahnert) [ paper ] []

We study third-party loan guarantees in a model in which lenders can screen and sell loans before maturity when in need of liquidity. Loan guarantees improve market liquidity, reduce lending standards, and can have a positive overall welfare effect. Guarantees improve the average quality of \textit{non-guaranteed} loans traded and thus the market liquidity of these loans due to selection. This positive pecuniary externality provides a rationale for guarantee subsidies. Our results contribute to a debate about reforming government-sponsored mortgage guarantees by Fannie Mae and Freddie Mac, suggesting that the excessively high subsidies to these guarantees should be reduced but not completely eliminated.

        Management Science, Accepted

Securitization under Asymmetric Information over the Business Cycle [ paper ] [ appendix ] []

This paper studies the efficiency of financial intermediation through securitization in a model with heterogeneous lending opportunities and asymmetric information about the quality of securities. Issuers of securities can signal their quality by providing recourse to security buyers. I find that signaling increases the variation in the degree of asymmetric information over the business cycle, which creates the documented growth asymmetry in the cycle. In particular, in the boom stage of the business cycle, security quality remains private information and lower-quality securities accumulate on the balance sheets of lenders. This inefficient allocation of capital implies a deeper drop in output in a subsequent recession proportional to the length of the preceding boom.

        European Economic Review 2019, Vol. 111
        Czech Economics Society Young Economist of the Year 2013, 1st place
        XXI MBF Conference Young Economist Best Paper Award

Working papers

The Canadian Neutral Rate of Interest through the Lens of an Overlapping-Generations Model (with Dmitry Matveev) [ paper ] []

The neutral rate of interest is an important concept and communication tool for central banks. We develop a small open economy model with overlapping generations to study the determinants of the neutral real rate of interest in a small open economy. The model captures domestic factors such as population aging, declining productivity, rising government debt and inequality. Foreign factors are captured by changes in the global neutral real rate. We use the model to evaluate secular dynamics of the neutral rate in Canada from 1980 to 2018. We find that changes in both foreign and domestic factors resulted in a protracted decline in the neutral rate.

        Bank of Canada Discussion Paper 2023-05

Fragility of Resale Markets for Securitized Assets and Policy of Asset Purchases [ paper ] []

Markets for securitized assets were characterized by high liquidity prior to the recent financial crisis and by a sudden market dry-up at the onset of the crisis. A general equilibrium model with heterogeneous investment opportunities and information frictions predicts that, in boom periods or mild recessions, the degree of adverse selection in resale markets for securitized assets is limited because of the reputation-based guarantees by asset originators. This supports investment and output. However, in a deep recession, characterized by high dispersion of asset qualities, there is a sudden surge in adverse selection due to an economy-wide default on reputation-based guarantees, which persistently depresses the output in the economy. Government policy of asset purchases limits the negative effects of adverse selection on the real economy, but may create a negative moral hazard problem.

        Bank of Canada Staff Working Paper 2016-46

Work in progress

In or Out: Do Bail-In Bonds Really Decrease Bailouts? (with Kinda Hachem) []

Bail-in bonds have gained a lot of attention among bank regulators. These bonds supposedly raise the hurdle for a government bailout by converting into loss-absorbing capital once the issuing bank runs into trouble. We argue that banks can short-circuit bail-in requirements by offering investors off-balance-sheet insurance against conversion. The bond itself appears as a bail-in bond on the issuer's balance sheet while the insurance is booked off balance sheet until the bond converts. The government can deter insurance provision by imposing penalties when insurance is discovered, but these penalties may not be credible. We find conditions for an equilibrium in which insurance against conversion is provided by banks and bailed out by the government rather than penalized upon discovery. We also present new empirical evidence in support of our model.

Government-backed mortgage insurance in a New-Keynesian model with moral hazard

Monetary policy and macro-prudential regulation: The importance of household heterogeneity (with Alexander Ueberfeldt)

Policy papers

Potential output and the neutral rate in Canada: 2022 reassessment (joint with G.Faucher, C.Hajzler, D.Matveev, Y.Park, T.Taskin ) Staff Analytical Note 2022-3
The uneven economic consequences of COVID 19: A structural analysis (joint with Austin McWhirter and Alexander Ueberfeldt) Staff Analytical Note 2021-17
Potential output and the neutral rate in Canada: 2021 update (joint with D.Brouillette, G.Faucher, A.McWhirter, Y.Park) Staff Analytical Note 2021-6
Assessment of the Effects of Macroprudential Tightening in Canada Staff Analytical Note 2016-12

The views expressed on this website are my own. No responsibility for them should be attributed to the Bank of Canada.