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78 Results

Expectation-Driven Term Structure of Equity and Bond Yields

Staff Working Paper 2022-21 Ming Zeng, Guihai Zhao
Recent findings on the term structure of equity and bond yields pose serious challenges to existing models of equilibrium asset pricing. This paper presents a new equilibrium model of subjective expectations to explain the joint historical dynamics of equity and bond yields (and their yield spreads).
Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Financial markets, Interest rates JEL Code(s): E, E4, E43, G, G0, G00, G1, G12

Real Exchange Rate Decompositions

Staff Discussion Paper 2022-6 Bruno Feunou, Jean-Sébastien Fontaine, Ingomar Krohn
We break down the exchange rate based on an explicit link between fixed income and currency markets. We isolate a foreign exchange risk premium and show it is the main driver of the exchange rate between the Canadian and US dollars, especially on monetary policy and macroeconomic news announcement days.

Monetary Policy Spillover to Small Open Economies: Is the Transmission Different under Low Interest Rates?

Does the transmission of monetary policy change when interest rates are low or negative? We shed light on this question by analyzing the international bank lending channels of monetary policy using regulatory data on banks from four small open economies: Canada, Chile, the Czech Republic and Norway.

Discount Rates, Debt Maturity, and the Fiscal Theory

Staff Working Paper 2021-58 Alexandre Corhay, Thilo Kind, Howard Kung, Gonzalo Morales
Do bond risk premiums influence the effects of debt maturity operations? Using a model with realistic bond risk premiums, we show that maturity operations have sizable effects on expected inflation and output when the central bank passively responds to inflation and the fiscal authority weakly responds to the debt level.
Content Type(s): Staff research, Staff working papers Topic(s): Fiscal policy, Interest rates, Monetary policy JEL Code(s): E, E4, E43, E44, E6, E63, G, G1, G12

Monetary Policy, Trends in Real Interest Rates and Depressed Demand

Staff Working Paper 2021-27 Paul Beaudry, Césaire Meh
Over the last few decades, real interest rates have trended downward. The most common explanation is that this reflects depressed demand due to demographic, technological and other real factors. We explore the claim that these trends may have been amplified by certain features of monetary policy.

Potential output and the neutral rate in Canada: 2021 update

We expect potential output growth to be higher than in the October 2020 reassessment. By 2024, growth will be slightly above its average growth from 2010 to 2019. We assess that the Canadian nominal neutral rate continues to lie in the range of 1.75 to 2.75 percent.

Secular Economic Changes and Bond Yields

Staff Working Paper 2021-14 Bruno Feunou, Jean-Sébastien Fontaine
We investigate the economic forces behind the secular decline in bond yields. Before the anchoring of inflation in the mid-1990s, nominal shocks drove inflation, output and bond yields. Afterward, the impacts of nominal shocks were much less significant.

Networking the Yield Curve: Implications for Monetary Policy

We study how different monetary policies affect the yield curve and interact. Our study highlights the importance of the spillover structure across the yield curve for policy-making.

2020 US Neutral Rate Assessment

This paper presents Bank of Canada staff’s current assessment of the US neutral rate, along with a newly developed set of models on which that assessment is based. The overall assessment is that the US neutral rate currently lies in a range of 1.75 to 2.75 percent.
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