Antonio Diez de los Rios is the Director, Monetary Policy Analysis & Research in the Financial Markets Department (FMD) at the Bank of Canada. His primary interests include the pricing of fixed-income securities and asset pricing models of exchange rate determination. In particular, he is interested in the use of yield curve models to extract financial market participants’ expectations about the future path of monetary policy. Antonio Diez de los Rios received his PhD in Economics from CEMFI (Madrid, Spain) and was a post-doctoral fellow at the Universite de Montreal.
Staff analytical notes
In an increasingly digitalized world, issuers of private digital currency can weaken central banks’ ability to stabilize the economy. By continuing to make central bank money attractive as a payment instrument in a digital world, a central bank digital currency (CDBC) could help to maintain a country’s monetary sovereignty.
Staff working papers
We study the interaction between epidemics and economic decisions in a model that has silent transmission of the virus. We find that rational behaviour strongly diminishes the severity of the epidemic but worsens the economic recession. We also find that the detection and isolation of not only symptomatic individuals but also those who are infected and asymptomatic or mildly symptomatic can reduce the severity of the recession caused by the pandemic.
How does the supply of nominal government debt affect the macroeconomy? To answer this question, we propose a portfolio-balance model of the yield curve in which inflation is determined through an interest rate rule.
This paper proposes a novel asymptotic least-squares estimator of multi-country Gaussian dynamic term structure models that is easy to compute and asymptotically efficient, even when the number of countries is relatively large—a situation in which other recently proposed approaches lose their tractability.
We compare the Federal Reserve’s asset purchase programs with those implemented by the Bank of England and the Swedish Riksbank, and the Swiss National Bank’s reserve expansion program.
Using the prices of crude oil futures contracts, we construct the term structure of crude oil convenience yields out to one-year maturity. The crude oil convenience yield can be interpreted as the interest rate, denominated in barrels of oil, for borrowing a single barrel of oil, and it measures the value of storing crude oil over the borrowing period.
This paper proposes a novel regression-based approach to the estimation of Gaussian dynamic term structure models that avoids numerical optimization.
We construct a multi-country affine term structure model that contains unspanned macroeconomic and foreign exchange risks. The canonical version of the model is derived and is shown to be easy to estimate.
McCallum (1994a) proposes a monetary rule where policymakers have some tendency to resist rapid changes in exchange rates to explain the forward premium puzzle.
Nowadays researchers can choose the sampling frequency of exchange rates and interest rates.
This paper presents a multifactor asset pricing model for currency, bond, and stock returns for ten emerging markets to investigate the effect of the exchange rate regime on the cost of capital and the integration of emerging financial markets. Since there is evidence that a fixed exchange rate regime reduces the currency risk premia demanded by foreign investors, the tentative conclusion is that a fixed exchange rate regime system can help reduce the cost of capital in emerging markets.
Bank of Canada Review articles
August 16, 2012
An important channel in the transmission of monetary policy is the relationship between the short-term policy rate and long-term interest rates. Using a new term-structure model, the authors show that the variation in long-term interest rates over time consists of two components: one representing investor expectations of future policy rates, and another reflecting a term-structure risk premium that compensates investors for holding a risky asset. The time variation in the term-structure risk premium is countercyclical and largely determined by global macroeconomic conditions. As a result, long-term rates are pushed up during recessions and down during times of expansion. This is an important phenomenon that central banks need to take into account when using short-term rates as a policy tool.
Financial System Review articles
- “A New Linear Estimator for Gaussian Dynamic Term Structure Models,”
Journal of Business and Economic Statistics, 33: 282-295, 2015
- “Optimal Asymptotic Least Squares Estimation in a Singular Set-Up,”
Economic Letters, 128: 83-86, 2015.
- “Testing Uncovered Interest Parity: A Continuous-Time Approach,”
(with E. Sentana), International Economic Review 52: p. 1215-1251, 2011.
- “Assessing and Valuing the Non-Linear Structure of Hedge Fund Returns,”
(with R. Garcia), Journal of Applied Econometrics 26: 193–212, 2011.
- “The Option CAPM and the Performance of Hedge Funds”
(with R. Garcia), Review of Derivatives Research 14: 137-167, 2011.
- “Internationally Affine Term Structure Models,”
Spanish Review of Financial Economics 9: 31–34, 2011.
- “Can Affine Term Structure Models Help Us Predict Exchange Rates?,”
Journal of Money, Credit and Banking, 41, 755-766, 2009.
- “Exchange Rate Regimes, Globalisation, and the Cost of Capital in Emerging Markets,”
Emerging Markets Review, 10, pp. 311-330, 2009.