In this study, we show how, to yield the real cost of borrowing, the price level can be combined with the nominal interest rate in a monetary regime where the level of prices is trend stationary. We show that the price level then conveys intertemporal information in a way similar to nominal interest rates. We [...]Topics: Inflation and prices; Inflation targets; Inflation: costs and benefits; Interest rates
Long-term Canada-U.S. interest spreads have changed remarkably during the 1990s. The unusually wide spreads of the first half of the decade have given way to an unprecedented run of negative yield differentials.
In this article, the author examines the conceptual aspects of yields on international assets and their application to the Canada-U.S. situation.
Prior to 1995, investors were unsure that, over the long run, inflation would meet the targets set by the government and the Bank. Policy credibility was undermined by large budget deficits and political uncertainty. In the second half of the decade, confidence was re-established as the fiscal positions of governments improved, long-run price stability became established, and political concerns about Quebec lessened.
As long as these fundamentals hold, long-term rates should remain relatively low, even when short-term rates rise.Topics: Financial markets; Interest rates; International topics
This paper examines the ability of a number of financial variables to predict Canadian recessions. Regarding methodology, we follow closely the technique employed by Estrella and Mishkin (1998), who use a probit model to predict U.S. recessions up to eight quarters in advance. Our main finding is that the spread between the yield on Canadian [...]Topics: Business fluctuations and cycles; Interest rates