The Bank of Canada's interest in fixed-income markets spans several of its functional areas of responsibility, including monetary policy, funds management, and financial system stability and efficiency. For that reason, the 2006 conference brought together top academics and central bankers from around the world to discuss leading-edge work in the field of fixed-income research. The papers and discussions cover such topics as the efficiency of fixed-income markets, price formation, the determinants of the yield curve, and volatility modelling. This article provides a short summary of each conference paper and the ensuing discussion.
Topics: Debt Management; Financial markets; Interest ratesModelling term-structure dynamics is an important component in measuring and managing the exposure of portfolios to adverse movements in interest rates.
Topics: Econometric and statistical methods; Financial markets; Interest ratesThe authors show that the widening of a foreign firm's U.S. investor base and the improved information environment associated with cross-listing on a U.S. exchange each have a separately identifiable effect on a firm's valuation.
Topics: Financial markets; International topicsThe authors use the efficient hedging methodology for optimal pricing and hedging of equity-linked life insurance contracts whose payoff depends on the performance of several risky assets.
Topics: Financial marketsThe authors estimate a small monthly macroeconometric model (BEAM, for bonds, equity, and money) of the Canadian economy built around three cointegrating relationships linking financial and real variables over the 1975–2002 period.
Topics: Financial markets; Financial stabilityThe author develops a strategy for utilizing higher moments and conditioning information efficiently, and hence improves on the variance bounds computed by Hansen and Jagannathan (1991, the HJ bound) and Gallant, Hansen, and Tauchen (1990, the GHT bound).
Topics: Financial markets; Market structure and pricingAn effective exchange rate is a measure of the value of a country's currency vis-à-vis the currencies of its most important trading partners. The Bank of Canada has created a new Canadian-dollar effective exchange rate index (CERI) to replace the C-6 index that it currently uses. The CERI uses multilateral trade weights published by the International Monetary Fund and includes the six currencies of countries or economic zones with the largest share of Canada's international trade. As such, it better reflects the recent changes in Canada's trade profile, including the rise in the importance of China and Mexico and the relative decline in importance of Europe and Japan in Canada's international trade. The author describes the methodology and construction of the new index and reviews the advantages it offers over the C-6, particularly the use of multilateral trade weights, the inclusion of trade in services, and the use of more recent trade data.
Topics: Exchange rates; Financial markets; Monetary and financial indicatorsTwo models of default risk are prominent in the financial literature: Merton's structural model and Altman's non-structural model.
Topics: Credit and credit aggregates; Debt Management; Econometric and statistical methods; Financial markets; Recent economic and financial developmentsChanges in investors' risk appetite have been used to explain a variety of phenomena in asset markets.
Topics: Economic models; Financial marketsThis overview includes a brief history highlighting the government's use of the primary and secondary markets to develop a framework for distributing its debt securities to financial market intermediaries and end investors. The framework is also intended to meet the government's debt-strategy objectives of raising stable, low-cost funding and maintaining a well-functioning debt market. Pellerin reviews the government's adoption of a new framework in 1998 as well as the 2005 modifications aimed at attracting continued broad and competitive participation in government auctions.
Topics: Debt Management; Financial marketsTraders using the electronic limit order book in the foreign exchange market can watch the posted price and depth of the best quotes change over the day.
Topics: Exchange rates; Financial markets
