Martin Kuncl

Contact information

Bank of Canada

Canadian Economic Analysis Department
Monetary Policy and Financial Studies Division
234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada

My Bank of Canada page


Research Interests

Macroeconomics and Financial Economics


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, DOI

Working papers

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

We examine insurance against loan default when lenders can screen in primary markets at a heterogeneous cost and learn loan quality over time. Since insurance at origination is observable and inseparable from the underlying loan, secondary markets are segmented. Self-selection of non-screening lenders into insurance reduces the amount of lemons traded in the secondary market for uninsured loans, which raises liquidity and welfare. This pecuniary externality implies insufficient loan insurance in the liquid equilibrium. To achieve constrained efficiency, a regulator (i) guarantees a minimum price in the market for uninsured loans to eliminate the welfare-dominated illiquid equilibrium; and (ii) imposes a Pigouvian subsidy on insurance in the liquid equilibrium to correct for the externality. Our results can inform the design of guarantees from government sponsored enterprises such as Fannie Mae and Freddie Mac.

        To be resubmitted to the Review of Financial Studies
        Bank of Canada Staff Working Paper 2019-47

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 (with Sami Alpanda)

The persistent macroeconomic consequences of household heterogeneity (with Alexander Ueberfeldt)

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

Policy paper

Assessment of the Effects of Macroprudential Tightening in Canada
Staff Analytical Note 2016-12

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