Interest rates

• November 23, 2003

  An Evaluation of Fixed Announcement Dates

  Bank of Canada Review - Autumn 2003 Nicolas Parent, Phoebe Munro, Ron Parker

  When it launched a new system for regularly announcing its decisions regarding the overnight rate of interest in December 2000, the Bank of Canada had a number of key objectives in mind. These included reduced uncertainty in financial markets, greater focus on the Canadian rather than the U.S. economic environment, more emphasis on the medium-term perspective of monetary policy, and increased transparency regarding the Bank's interest rate decisions. Evidence to date suggests that all four objectives have been met to a substantial degree. Fixed announcement dates have provided regular opportunities for the Bank to communicate its views on the state of the Canadian economy to the public. This has helped to improve understanding of the broad direction of monetary policy and of the rationale behind the Bank's policy decisions although the decisions themselves are not always fully anticipated.

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

• Measuring Interest Rate Expectations in Canada

  Staff Working Paper 2003-26 Grahame Johnson

  Financial market expectations regarding future policy actions by the Bank of Canada are an important input into the Bank's decision-making process, and they can be measured using a variety of sources. The author develops a simple expectations-based model to focus on measuring interest rate expectations that are implied by the current level of money market yields.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Interest rates JEL Code(s): G, G1
• August 22, 2003

  Measuring Interest Rate Expectations in Canada

  Bank of Canada Review - Summer 2003 Grahame Johnson

  Financial market expectations regarding future changes in the target for the overnight rate of interest are an important source of information for the Bank of Canada. Financial markets are the mechanism through which the policy rate affects other financial variables, such as longer-term interest rates, the exchange rate, and other asset prices. An accurate measure of their expectations can therefore help policy-makers assess the potential impact of contemplated changes. Johnson focuses on the expectations hypothesis, which measures expectations of future levels of the target overnight rate as implied by current money market yields. Although expectations can be derived from the current yield on any short-term fixed-income asset, some assets have proven to be more accurate predictors than others. The implementation of a policy of fixed-announcements dates has coincided with the increased predictive power of these short-term assets. As a result of this improvement, a relatively simple model of the yield curve can now provide an accurate measure of financial market expectations.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Exchange rates, Financial markets, Interest rates