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Modelling the Duration of Interest Rate Spells Under Inflation Targeting in Canada

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Abstract

We use survival models to analyze the duration of the spells associated with the interest rate used by the Bank of Canada as its monetary policy instrument. Both non-parametric and parametric models are estimated, allowing for right-censoring of the data, and time-varying covariates. We find that the data are explained well by an accelerated failure time Weibull model, with the annual rate of inflation and the quarterly rate of growth in GDP as covariates. The model indicates that there is positive duration dependence in the interest rate spells, and that unemployment and exchange rate effects are insignificant.

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Bibliographic Info

Paper provided by Department of Economics, University of Victoria in its series Econometrics Working Papers with number 0605.

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Length: 20 pages
Date of creation: 08 Sep 2006
Date of revision:
Handle: RePEc:vic:vicewp:0605

Note: ISSN 1485-6441
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Postal: PO Box 1700, STN CSC, Victoria, BC, Canada, V8W 2Y2
Phone: (250)721-6197
Fax: (250)721-6214
Web page: http://web.uvic.ca/econ
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Keywords: Inflation target; survival analysis; monetary policy;

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References

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  1. Jiri Jonas & Frederic S. Mishkin, 2003. "Inflation Targeting in Transition Countries: Experience and Prospects," NBER Working Papers 9667, National Bureau of Economic Research, Inc.
  2. David E. Giles, 2005. "Survival of the Hippest: Life at the Top of the Hot 100," Econometrics Working Papers 0507, Department of Economics, University of Victoria.
  3. Kennan, John, 1985. "The duration of contract strikes in U.S. manufacturing," Journal of Econometrics, Elsevier, vol. 28(1), pages 5-28, April.
  4. Lawrence F. Katz, 1986. "Layoffs, Recall and the Duration of Unemployment," NBER Working Papers 1825, National Bureau of Economic Research, Inc.
  5. Dib, Ali, 2006. "Nominal rigidities and monetary policy in Canada," Journal of Macroeconomics, Elsevier, vol. 28(2), pages 303-325, June.
  6. Gerlach, Stefan & Smets, Frank, 2000. "MCIs and monetary policy," European Economic Review, Elsevier, vol. 44(9), pages 1677-1700, October.
  7. Kiefer, Nicholas M, 1988. "Economic Duration Data and Hazard Functions," Journal of Economic Literature, American Economic Association, vol. 26(2), pages 646-79, June.
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Cited by:
  1. Yang Ni & Shasha Guo & David E. Giles, 2009. "Capital Structures in an Emerging Market: A Duration Analysis of the Time Interval Between IPO and SEO in China," Econometrics Working Papers 0905, Department of Economics, University of Victoria.
  2. Jaromir Baxa & Roman Horvath & Borek Vasicek, 2010. "How Does Monetary Policy Change? Evidence on Inflation Targeting Countries," Working Papers 2010/02, Czech National Bank, Research Department.
  3. Guo, Yingwen & Zhou Z.F., Sherry, 2011. "Duration Analysis of Interest Rate Spells : Cross-National Study of Interest Rate Policy," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 52(1), pages 1-11, June.

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