Topic: Interest rates

1. The Market Impact of Forward-Looking Policy Statements: Transparency vs. Predictability

   Bank of Canada Review Article: Bank of Canada Review - Winter 2008-2009 - Christine Fay, Toni Gravelle

   Central banks continuously strive to improve how they communicate to financial markets and the public in order to increase transparency. For this reason, many central banks have begun to include guidance on the policy rate in the form of forward-looking statements in their communications. This article examines the debate over the usefulness of providing such statements from both theoretical and empirical standpoints. The evidence presented here suggests that the use of forward-looking statements in Bank of Canada communications has made the Bank more predictable, but not necessarily more transparent. Topics: Central bank research; Interest rates; Transmission of monetary policy

2. McCallum Rules, Exchange Rates, and the Term Structure of Interest Rates

   Working Paper 2008-43 - Antonio Diez de los Rios

   McCallum (1994a) proposes a monetary rule where policymakers have some tendency to resist rapid changes in exchange rates to explain the forward premium puzzle.

   Topics: Exchange rates; Interest rates; Transmission of monetary policy

3. Combining Canadian Interest-Rate Forecasts

   Working Paper 2008-34 - David Bolder, Yuliya Romanyuk

   Model risk is a constant danger for financial economists using interest-rate forecasts for the purposes of monetary policy analysis, portfolio allocations, or risk-management decisions. Use of multiple models does not necessarily solve the problem as it greatly increases the work required and still leaves the question "which model forecast should one use?"

   Topics: Econometric and statistical methods; Interest rates

4. Macroeconomic Determinants of the Term Structure of Corporate Spreads

   Working Paper 2008-29 - Jun Yang

   We investigate the macroeconomic determinants of corporate spreads using a no-arbitrage technique. Structural shocks are identified by a New-Keynesian model. Treasury bonds are priced in an affine model with time-varying risk premia.

   Topics: Debt Management; Financial markets; Interest rates