Bio

Bruno Feunou Kamkui is a Director at the Bank of Canada’s Financial Markets Department. He previously worked at Duke University as a post-doc associate. He completed his Ph.D-Degree at the University of Montreal.

Research Field(s): Applied Econometrics Asset Pricing Empirical Finance Financial Economics Forecasting Term Structure Modelling Time Series

Staff analytical notes

The Secular Decline of Forecasted Interest Rates

Staff Analytical Note 2019-1 Bruno Feunou, Jean-Sébastien Fontaine
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.
Content Type(s): Staff research, Staff analytical notes Topic(s): Financial markets, Interest rates JEL Code(s): E, E4, E43, G, G1, G12

Does US or Canadian Macro News Drive Canadian Bond Yields?

Staff Analytical Note 2018-38 Bruno Feunou, Rodrigo Sekkel, Morvan Nongni-Donfack
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.
Content Type(s): Staff research, Staff analytical notes Topic(s): Financial markets, International topics, Monetary policy JEL Code(s): C, C2, C22, E, E4, E43

Markets Look Beyond the Headline

Staff Analytical Note 2018-37 Bruno Feunou, James Kyeong, Raisa Leiderman
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.
Content Type(s): Staff research, Staff analytical notes Topic(s): Asset pricing, Exchange rates, Interest rates JEL Code(s): E, E4, E43, G, G1, G12, G14

The Impacts of Monetary Policy Statements

Staff Analytical Note 2017-22 Bruno Feunou, Corey Garriott, James Kyeong, Raisa Leiderman
In this note, we find that market participants react to an unexpected change in the tone of Canadian monetary policy statements. When the market perceives that the Bank of Canada plans to tighten (or alternatively, loosen) the monetary policy earlier than previously expected, the Canadian dollar appreciates (or depreciates) and long-term Government of Canada bond yields increase (or decrease). The tone of a statement is particularly relevant to the market when the policy rate has been unchanged for some time.
Content Type(s): Staff research, Staff analytical notes Topic(s): Asset pricing, Exchange rates, Interest rates, Monetary policy communications, Monetary policy transmission JEL Code(s): E, E4, E43, E5, E52, F, F3, F31, G, G1, G12

Foreign Flows and Their Effects on Government of Canada Yields

Staff Analytical Note 2015-1 Bruno Feunou, Jean-Sébastien Fontaine, James Kyeong, Jesus Sierra
Foreign investment flows into Government of Canada (GoC) bonds have surged since the financial crisis. Our empirical analysis suggests that foreign flows of $150 billion lowered the 10-year GoC bond yield by 100 basis points between 2009 and 2012.
Content Type(s): Staff research, Staff analytical notes Topic(s): International financial markets, International topics, Monetary policy transmission JEL Code(s): F, F3, F32

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Staff discussion papers

The Neutral Interest Rate: Past, Present and Future

Staff Discussion Paper 2024-3 Matteo Cacciatore, Bruno Feunou, Galip Kemal Ozhan
The decline in safe real interest rates over the past three decades has reignited discussions on the neutral real interest rate, known as R*. We address the determinants and estimation methods of R*, as well as the factors influencing its decline and its future trajectory.
Content Type(s): Staff research, Staff discussion papers Topic(s): Interest rates, Monetary policy, Monetary policy framework JEL Code(s): E, E4, E43, E5, E52, E6, E62

Forecasting Risks to the Canadian Economic Outlook at a Daily Frequency

Staff Discussion Paper 2023-19 Chinara Azizova, Bruno Feunou, James Kyeong
This paper quantifies tail risks in the outlooks for Canadian inflation and real GDP growth by estimating their conditional distributions at a daily frequency. We show that the tail risk probabilities derived from the conditional distributions accurately reflect realized outcomes during the sample period from 2002 to 2022.
Content Type(s): Staff research, Staff discussion papers Topic(s): Business fluctuations and cycles, Econometric and statistical methods JEL Code(s): C, C3, C32, C5, C58, E, E4, E44, G, G1, G17

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.
Content Type(s): Staff research, Staff discussion papers Topic(s): Asset pricing, Exchange rates, International financial markets, Monetary policy transmission JEL Code(s): E, E4, E43, F, F3, F31, G, G1, G12

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Staff working papers

U.S. Macroeconomic News and Low-Frequency Changes in Small Open Economies’ Bond Yields

Staff Working Paper 2024-12 Bingxin Ann Xing, Bruno Feunou, Morvan Nongni-Donfack, Rodrigo Sekkel
Using two complementary approaches, we investigate the importance of U.S. macroeconomic news in driving low-frequency fluctuations in the term structure of interest rates in Canada, Sweden and the United Kingdom. We find that U.S. macroeconomic news is particularly important to explain changes in the expectation components of the nominal, real and break-even inflation rates of small open economies.
Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Econometric and statistical methods JEL Code(s): E, E4, E43, E44, E47, G, G1, G14

Generalized Autoregressive Gamma Processes

Staff Working Paper 2023-40 Bruno Feunou
We introduce generalized autoregressive gamma (GARG) processes, a class of autoregressive and moving-average processes in which each conditional moment dynamic is driven by a different and identifiable moving average of the variable of interest. We show that using GARG processes reduces pricing errors by substantially more than using existing autoregressive gamma processes does.
Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Econometric and statistical methods JEL Code(s): C, C5, C58, G, G1, G12

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.
Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Econometric and statistical methods, Interest rates, Monetary policy and uncertainty, Potential output JEL Code(s): E, E4, E43, G, G1, G12

The Term Structures of Loss and Gain Uncertainty

Staff Working Paper 2020-19 Bruno Feunou, Ricardo Lopez Aliouchkin, Roméo Tedongap, Lai Xu
We investigate the uncertainty around stock returns at different investment horizons. Since a return is either a loss or a gain, we categorize return uncertainty into two components—loss uncertainty and gain uncertainty. We then use these components to evaluate investment.
Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Econometric and statistical methods JEL Code(s): G, G1, G12

Risk-Neutral Moment-Based Estimation of Affine Option Pricing Models

Staff Working Paper 2017-55 Bruno Feunou, Cédric Okou
This paper provides a novel methodology for estimating option pricing models based on risk-neutral moments. We synthesize the distribution extracted from a panel of option prices and exploit linear relationships between risk-neutral cumulants and latent factors within the continuous time affine stochastic volatility framework.
Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Econometric and statistical methods JEL Code(s): G, G1, G12

Good Volatility, Bad Volatility and Option Pricing

Staff Working Paper 2017-52 Bruno Feunou, Cédric Okou
Advances in variance analysis permit the splitting of the total quadratic variation of a jump diffusion process into upside and downside components. Recent studies establish that this decomposition enhances volatility predictions, and highlight the upside/downside variance spread as a driver of the asymmetry in stock price distributions.
Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Econometric and statistical methods JEL Code(s): G, G1, G12

Time-Varying Crash Risk: The Role of Stock Market Liquidity

Staff Working Paper 2016-35 Peter Christoffersen, Bruno Feunou, Yoontae Jeon, Chayawat Ornthanalai
We estimate a continuous-time model with stochastic volatility and dynamic crash probability for the S&P 500 index and find that market illiquidity dominates other factors in explaining the stock market crash risk. While the crash probability is time-varying, its dynamic depends only weakly on return variance once we include market illiquidity as an economic variable in the model.
Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Econometric and statistical methods, Financial stability JEL Code(s): G, G0, G01, G1, G12

Tractable Term Structure Models

Staff Working Paper 2015-46 Bruno Feunou, Jean-Sébastien Fontaine, Anh Le, Christian Lundblad
We introduce a new framework that facilitates term structure modeling with both positive interest rates and flexible time-series dynamics but that is also tractable, meaning amenable to quick and robust estimation.
Content Type(s): Staff research, Staff working papers Topic(s): Asset pricing, Interest rates, International financial markets, International topics, Monetary policy and uncertainty, Monetary policy transmission JEL Code(s): G, G1, G12

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Bank publications

Bank of Canada Review articles

May 13, 2014

Measuring Uncertainty in Monetary Policy Using Realized and Implied Volatility

Bank of Canada Review - Spring 2014 Bo Young Chang, Bruno Feunou
Uncertainty surrounding the Bank of Canada’s future policy rates is measured using implied volatility computed from interest rate options and realized volatility computed from intraday prices of interest rate futures. Both volatility measures show that uncertainty decreased following major policy actions taken by the Bank in response to the 2007–09 financial crisis. Findings also indicate that, on average, uncertainty decreases following the Bank’s policy rate announcements.
Content Type(s): Publications, Bank of Canada Review articles Topic(s): Monetary policy and uncertainty JEL Code(s): E, E5, E52, E58

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Journal publications

Refereed journals