Interest rates

• A Non-Paradoxical Interpretation of the Gibson Paradox

  Staff Working Paper 1998-22 Serge Coulombe

  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 […]

  Content Type(s): Staff research, Staff working papers Topic(s): Inflation and prices, Inflation targets, Inflation: costs and benefits, Interest rates
• May 13, 1998

  Canada-U.S. long-term interest differentials in the 1990s

  Bank of Canada Review - Spring 1998 Kevin Clinton

  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.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Financial markets, Interest rates, International topics

• Predicting Canadian Recessions Using Financial Variables: A Probit Approach

  Staff Working Paper 1998-5 Joseph Atta-Mensah, Greg Tkacz

  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 […]

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Interest rates JEL Code(s): E, E3, E32, E4, E43