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African Marriage Money

The metal marriage currencies pictured on the cover are part of the National Currency Collection, Bank of Canada.
Photography by Gord Carter, Ottawa.

The financial system makes an important contribution to the welfare of all Canadians. The ability of households and firms to confidently hold and transfer financial assets is one of the fundamental building blocks of the Canadian economy.

In the interest of better understanding the impact of the Bank of Canada's policy actions on bond and bill yields, Andreou assesses the impact of policy-rate announcements on short and long bonds over the period 1996 to 2004. To aid the analysis, policy actions are decomposed into expected and surprise components. He also examines whether the introduction of fixed announcement dates (FADs) has affected these results, including markets' perceptions. The main finding is that unexpected policy actions by the Bank have a significant effect on market rates at the shorter end of the yield curve, with the effect dissipating as the maturity increases. A second finding, that the impact on longer-term interest rates of a surprise action by the Bank has diminished since the introduction of the FADs, suggests that the Bank's long-term policy goals are well understood and credible.