Reactions of Canadian Interest Rates to Macroeconomic Announcements: Implications for Monetary Policy Transparency
In this study we statistically quantify the reactions of Canadian and U.S. interest rates to macroeconomic announcements released in Canada and in the United States. We find that Canadian interest rates react very little to Canadian macroeconomic news and are significantly affected by U.S. macroeconomic news, which indicates that international influences on the Canadian fixed-income markets are important. Moreover, we find little evidence that Canadian interest rates have become more sensitive to Canadian macroeconomic announcements over time. This suggests that Canadian market participants have gained little understanding of which macroeconomic variables condition the Bank's monetary policy reaction function and that the Bank of Canada's efforts, since the early 1990s, to make its conduct of monetary policy more transparent to the public have not been fruitful. We hypothesize that the lack of fixed monetary policy announcement dates in Canada prior to December 2000, and the Bank's efforts to, on occasion, smooth destabilizing fluctuations in foreign exchange rates, have contributed to the inability of Canadian market participants to better understand the monetary policy reaction function.
|Date of creation:||2001|
|Date of revision:|
|Contact details of provider:|| Postal: 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada|
Phone: 613 782-8845
Fax: 613 782-8874
Web page: http://www.bank-banque-canada.ca/
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Michael J. Fleming & Eli M. Remolona, 1997.
"What moves the bond market?,"
9706, Federal Reserve Bank of New York.
- W.H. Buiter, 1999.
"Alice in Euroland,"
CEP Discussion Papers
dp0423, Centre for Economic Performance, LSE.
- Newey, Whitney & West, Kenneth, 2014.
"A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix,"
Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
- Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-08, May.
- Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
- Michael J. Fleming & Eli M. Remolona, 1999.
"The term structure of announcement effects,"
76, Federal Reserve Bank of New York.
- Kuttner, Kenneth N., 2001.
"Monetary policy surprises and interest rates: Evidence from the Fed funds futures market,"
Journal of Monetary Economics,
Elsevier, vol. 47(3), pages 523-544, June.
- Kenneth N. Kuttner, 2000. "Monetary policy surprises and interest rates: evidence from the Fed funds futures markets," Staff Reports 99, Federal Reserve Bank of New York.
- William Poole & Robert Rasche, 2000.
"Perfecting the Market's Knowledge of Monetary Policy,"
Journal of Financial Services Research,
Springer;Western Finance Association, vol. 18(2), pages 255-298, December.
- William Poole & Robert H. Rasche, 2000. "Perfecting the market's knowledge of monetary policy," Working Papers 2000-010, Federal Reserve Bank of St. Louis.
- Andrew G Haldane & Vicky Read, 2000. "Monetary policy surprises and the yield curve," Bank of England working papers 106, Bank of England.
- Hardy, Daniel C., 1996. "Market reaction to changes in German official interest rates," Discussion Paper Series 1: Economic Studies 1996,04, Deutsche Bundesbank, Research Centre.
- Clinton, Kevin, 2001. "On Commodity-Sensitive Currencies and Inflation Targeting," Staff Working Papers 01-3, Bank of Canada.
- Murray, John & Mark Zelmer & Zahir Antia, 2000. "International Financial Crises and Flexible Exchange Rates: Some Policy Lessons from Canada," Technical Reports 88, Bank of Canada.
- Tarkka, Juha & Mayes, David, 1999. "The value of publishing official central bank forecasts," Research Discussion Papers 22/1999, Bank of Finland.
- Serge Boisvert & Nancy Harvey, 1998. "The declining supply of treasury bills and the Canadian money market," Bank of Canada Review, Bank of Canada, vol. 1998(Summer), pages 53-69.
- Daniel L. Thornton, 1996. "Does the Fed's new policy of immediate disclosure affect the market?," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 77-88.
- Muller, P. & M. Zelmer, 1999. "Greater Transparency in Monetary Policy: Impact on Financial Markets," Technical Reports 86, Bank of Canada.
- Andrew Clare & Roger Courtenay, 2001. "Assessing the impact of macroeconomic news announcements on securities prices under different monetary policy regimes," Bank of England working papers 125, Bank of England.
When requesting a correction, please mention this item's handle: RePEc:bca:bocawp:01-5. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.