Bruno Feunou is a Research Advisor at the Bank of Canada’s Financial Markets Department. Before this position at the Bank of Canada, he worked at Duke University as a post-doc associate. He completed his Ph.D-Degree at the University of Montreal. During his thesis, he was supported by several Grants including IFM2, Banque Laurentienne, CIREQ and CREST. He also studied Mathematics and Statistics at several universities in Africa including the University of Dschang, Yaoundé I, ISSEA of Yaoundé and ENSEA of Abidjan. In these studies, he was supported by a grant from the European Union to study Statistics and Econometrics.
Canadian interest rates show a secular decline since the 1980s. Long-term survey-based forecasts of interest rates also declined, but less so and were more gradual. Our model-based estimates show an endpoint shifting over time in three phases: a decline between 1990 and 1995, a period of stability between 1996 and 2007, and a further decline since 2008. The current endpoint estimate remains clouded with uncertainty; this is an active area of research.
We show that a large share of low-frequency (quarterly) movements in Canadian government bond yields can be explained by macroeconomic news, even though high-frequency (daily) changes are driven by other shocks. Furthermore, we show that US macro news—not domestic news— explains most of the quarterly variation in Canadian bond yields.
Many reports and analyses interpret the release of new economic data based on the headline surprise—for instance, total inflation, real GDP growth and the unemployment rate. However, we find that headline news alone cannot adequately explain the responses of market prices to new information. Rather, market prices react more strongly, on average, to non-headline news such as the composition of GDP growth, quality of jobs created and revisions to past data. Thus, tracking the impact of non-headline information released on the news day is crucial in analyzing how markets interpret and react to new economic data.