E43 - Interest Rates: Determination, Term Structure, and Effects
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The Zero Bound on Nominal Interest Rates: Implications for the Optimal Monetary Policy in Canada
The authors assess the performance of the Canadian economy under a variety of interest rate rules when the zero bound on nominal interest rates can bind. Their assessment is based on numerical simulations of a dynamic stochastic general-equilibrium model in a stochastic environment. Consistent with the literature, the authors find that the probability and consequences […] -
Can Affine Term Structure Models Help Us Predict Exchange Rates?
The author proposes an arbitrage-free model of the joint behaviour of interest and exchange rates whose exchange rate forecasts outperform those produced by a random-walk model, a vector autoregression on the forward premiums and the rate of depreciation, and the standard forward premium regression. -
The Canadian Macroeconomy and the Yield Curve: An Equilibrium-Based Approach
The authors develop and estimate an equilibrium-based model of the Canadian term structure of interest rates. -
Real Return Bonds, Inflation Expectations, and the Break-Even Inflation Rate
According to the Fisher hypothesis, the gap between Canadian nominal and Real Return Bond yields (or break-even inflation rate) should be a good measure of inflation expectations. -
Convergence of Government Bond Yields in the Euro Zone: The Role of Policy Harmonization
Since the early 1980s, long-term government bond yields in the euro zone have declined, in line with those in other industrialized countries. -
Estimating the Fractional Order of Integration of Interest Rates Using a Wavelet OLS Estimator
The debate on the order of integration of interest rates has long focused on the I(1) versus I(0) distinction. In this paper, we use instead the wavelet OLS estimator of Jensen (1999) to estimate the fractional integration parameters of several interest rates for the United States and Canada from 1948 to 1999. -
The Expectations Hypothesis for the Longer End of the Term Structure: Some Evidence for Canada
This paper assesses the expectations theory for the longer end of the term structure of Canadian interest rates using three empirical approaches that have received attention in the literature: (i) cointegration tests of the long-run unbiasedness hypothesis; (ii) simulations of a theoretical long-term yield that is consistent with the expectations hypothesis, and (iii) ex post […] -
Uncovering Inflation Expectations and Risk Premiums From Internationally Integrated Financial Markets
Theory and empirical evidence suggest that the term structure of interest rates reflects risk premiums as well as market expectations about future inflation and real interest rates. We propose an approach to extracting such premiums and expectations by exploiting both the comovements among interest rates across the yield curve and between two countries, Canada and […] -
Predicting Canadian Recessions Using Financial Variables: A Probit Approach
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 […]