E4 - Money and Interest Rates

• Uncovering Inflation Expectations and Risk Premiums From Internationally Integrated Financial Markets

  Staff Working Paper 1999-6 Ben Fung, Scott Mitnick, Eli Remolona

  Theory and empirical evidence suggest that the term structure of interest rates reflects risk premiums as well as market expectations about future inflation and real interest rates. We propose an approach to extracting such premiums and expectations by exploiting both the comovements among interest rates across the yield curve and between two countries, Canada and […]

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Inflation and prices, Interest rates, International topics JEL Code(s): E, E4, E43, G, G1, G12, G15

• Forecasting GDP Growth Using Artificial Neural Networks

  Staff Working Paper 1999-3 Greg Tkacz, Sarah Hu

  Financial and monetary variables have long been known to contain useful leading information regarding economic activity. In this paper, the authors wish to determine whether the forecasting performance of such variables can be improved using neural network models. The main findings are that, at the 1-quarter forecasting horizon, neural networks yield no significant forecast improvements. […]

  Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Monetary and financial indicators JEL Code(s): C, C4, C45, E, E3, E37, E4, E44

• Forecasting Inflation with the M1-VECM: Part Two

  Staff Working Paper 1998-6 Walter Engert, Scott Hendry

  A central bank's main concern is the general direction of future inflation, and not transitory fluctuations of the inflation rate. As a result, this paper is concerned with forecasting a simple measure of the trend of inflation, the eight-quarter CPI-inflation rate. The primary objective is to improve the M1-based vector-error-correction model (VECM) developed by Hendry […]

  Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Inflation and prices, Monetary aggregates JEL Code(s): C, C3, C5, E, E3, E4, E5

• Predicting Canadian Recessions Using Financial Variables: A Probit Approach

  Staff Working Paper 1998-5 Joseph Atta-Mensah, Greg Tkacz

  This paper examines the ability of a number of financial variables to predict Canadian recessions. Regarding methodology, we follow closely the technique employed by Estrella and Mishkin (1998), who use a probit model to predict U.S. recessions up to eight quarters in advance. Our main finding is that the spread between the yield on Canadian […]

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Interest rates JEL Code(s): E, E3, E32, E4, E43

• Canadian Short-Term Interest Rates and the BAX Futures Market: Analysis of the Impact of Volatility on Hedging Activity and the Correlation of Returns between Markets

  Staff Working Paper 1997-18 David Watt

  This paper analyses how Canadian financial firms manage short-term interest rate risk through the use of BAX futures contracts. The results show that the most effective hedging strategy is, on average, a static strategy based on linear regression that assumes constant variances, even though dynamic models allowing for time-varying variances are found to have superior explanatory power.

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets, Interest rates JEL Code(s): E, E4, E43

• The Structure of Interest Rates in Canada: Information Content about Medium-Term Inflation

  Staff Working Paper 1997-10 Jim Day, Ron Lange

  This paper examines the relationship between the term structure of interest rates and future changes in inflation for Canada using a newly constructed par-value yield series. The main conclusion of the empirical work is that the slope of the nominal term structure from 1- to 5-year maturities is a reasonably good predictor of future changes in inflation over these horizons.

  Content Type(s): Staff research, Staff working papers Topic(s): Interest rates, Monetary and financial indicators JEL Code(s): E, E4, E43

• The Liquidity Trap: Evidence from Japan

  Staff Working Paper 1997-4 Isabelle Weberpals

  Japanese economic activity has been stagnant since the collapse of the speculative asset-price bubble in 1990, despite highly expansionary monetary policy which has brought interest rates down to record low levels. Although several reasons have been put forward to explain the sustained weakness of the Japanese economy, none is more intriguing from the viewpoint of a central bank than the possibility that monetary policy had been largely ineffective because the Japanese economy entered a Keynesian "liquidity trap."

  Content Type(s): Staff research, Staff working papers Topic(s): International topics, Recent economic and financial developments JEL Code(s): E, E4, E42, E5, E51, E52

• L'endettement du Canada et ses effets sur les taux d'intérêt réels de long terme

  Staff Working Paper 1996-14 Jean-François Fillion

  This paper examines the effects that Canada's indebtedness has on Canadian real long-term interest rates, using the vector error-correction model (VECM). Our results show that there is a strongly cointegrated relationship between real interest rates in Canada, U.S. real interest rates, and Canadian public and external debt ratios.

  Content Type(s): Staff research, Staff working papers Topic(s): Fiscal policy, Interest rates JEL Code(s): E, E4, E43, F, F3, F30, H, H6, H60

• Speculative Behaviour, Regime-Switching and Stock Market Crashes

  Staff Working Paper 1996-13 Simon van Norden, Huntley Schaller

  This paper uses regime-switching econometrics to study stock market crashes and to explore the ability of two very different economic explanations to account for historical crashes. The first explanation is based on historical accounts of "manias and panics."

  Content Type(s): Staff research, Staff working papers Topic(s): Financial markets JEL Code(s): C, C4, C40, E, E4, E44, G, G1, G12

• Interpreting Money-Supply and Interest-Rate Shocks as Monetary-Policy Shocks

  Staff Working Paper 1996-8 Marcel Kasumovich

  In this paper two shocks are analysed using Canadian data: a money-supply shock ("M-shock") and an interest-rate shock ("R-shock"). Money-supply shocks are derived using long-run restrictions based on long-run propositions of monetary theory. Thus, an M-shock is represented by an orthogonalized innovation in the trend shared by money and prices.

  Content Type(s): Staff research, Staff working papers Topic(s): Monetary and financial indicators, Monetary policy transmission JEL Code(s): E, E4, E43, E5, E51