Interest rates

• December 20, 2002

  Transparency and the Response of Interest Rates to the Publication of Macroeconomic Data

  Bank of Canada Review - Winter 2002-2003 Nicolas Parent

  The benefits of transparency—the outcome of the measures taken by the central bank to allow financial markets and economic agents to understand the factors it takes into account in formulating monetary policy—are now widely recognized. These benefits include smoother implementation of monetary policy and increased effectiveness as markets improve their ability to anticipate the Bank's policy decisions and account for them in their operations. How interest rates respond to the publication of macroeconomic data depends on the degree of transparency in monetary policy, as the rates will rise or fall as a reflection of the market's revised expectations. Before the Bank of Canada adopted initiatives to improve transparency, such as the inflation-control targets, the semi-annual publication of the Monetary Policy Report and Updates, and the fixed announcement dates, changes to the overnight rate created some volatility in interest rates, and publishing Canadian macroeconomic data did not appear to have a major impact on rates. This article shows how the Bank of Canada's steps towards greater transparency have increased the impact of Canadian data on short-term interest rates and have improved financial markets' understanding of how monetary policy decisions are taken.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Financial markets, Interest rates, Monetary policy and uncertainty

• Inflation Changes, Yield Spreads, and Threshold Effects

  Staff Working Paper 2002-40 Greg Tkacz

  Using interest rate yield spreads to explain changes in inflation, we investigate whether such relationships can be modelled using two-regime threshold models.

  Content Type(s): Staff research, Staff working papers Topic(s): Inflation and prices, Interest rates JEL Code(s): C, C5, C51, E, E3, E31

• Exponentials, Polynomials, and Fourier Series: More Yield Curve Modelling at the Bank of Canada

  Staff Working Paper 2002-29 David Bolder, Scott Gusba

  This paper continues the work started by Bolder and Stréliski (1999) and considers two alternative classes of models for extracting zero-coupon and forward rates from a set of observed Government of Canada bond and treasury-bill prices.

  Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Financial markets, Interest rates JEL Code(s): C, C0, C6, E, E4, G, G1

• Towards a More Complete Debt Strategy Simulation Framework

  Staff Working Paper 2002-13 David Bolder

  An effective technique governments use to evaluate the desirability of different financing strategies involves stochastic simulation. This approach requires the postulation of the future dynamics of key macroeconomic variables and the use of those variables in the construction of a debt charge distribution for each individual financing strategy.

  Content Type(s): Staff research, Staff working papers Topic(s): Debt management, Econometric and statistical methods, Interest rates JEL Code(s): C, C0, C5, G, G0