IDEAS home Printed from https://ideas.repec.org/p/bca/bocsan/19-1.html
   My bibliography  Save this paper

The Secular Decline of Forecasted Interest Rates

Author

Listed:
  • Jean-Sébastien Fontaine
  • Bruno Feunou

Abstract

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.

Suggested Citation

  • Jean-Sébastien Fontaine & Bruno Feunou, 2019. "The Secular Decline of Forecasted Interest Rates," Staff Analytical Notes 2019-1, Bank of Canada.
    • Handle: RePEc:bca:bocsan:19-1
    as

    Download full text from publisher

    File URL: https://www.bankofcanada.ca/2019/01/staff-analytical-note-2019-1/
    File Function: Full text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Xin Scott Chen & José Dorich, 2018. "The Neutral Rate in Canada: 2018 Estimates," Staff Analytical Notes 2018-22, Bank of Canada.
    2. Kozicki, Sharon & Tinsley, P. A., 2001. "Shifting endpoints in the term structure of interest rates," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 613-652, June.
    3. Rhys R. Mendes, 2014. "The Neutral Rate of Interest in Canada," Discussion Papers 14-5, Bank of Canada.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Thomas J. Carter & Xin Scott Chen & José Dorich, 2019. "Le taux neutre au Canada : mise à jour de 2019," Staff Analytical Notes 2019-11fr, Bank of Canada.
    2. Thomas J. Carter & Xin Scott Chen & José Dorich, 2019. "The Neutral Rate in Canada: 2019 Update," Staff Analytical Notes 2019-11, Bank of Canada.
    3. James Bootsma & Thomas J. Carter & Xin Scott Chen & Christopher Hajzler & Argyn Toktamyssov, 2020. "2020 US Neutral Rate Assessment," Discussion Papers 2020-12, Bank of Canada.
    4. Matsumura, Marco & Moreira, Ajax & Vicente, José, 2011. "Forecasting the yield curve with linear factor models," International Review of Financial Analysis, Elsevier, vol. 20(5), pages 237-243.
    5. Stefan Laséen & Andrea Pescatori, 2020. "Financial stability and interest‐rate policy: A quantitative assessment of costs and benefit," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(3), pages 1246-1273, August.
    6. Hans Dewachter & Marco Lyrio & Konstantijn Maes, 2004. "The Effect of Monetary Unification on German Bond Markets," European Financial Management, European Financial Management Association, vol. 10(3), pages 487-509, September.
    7. Salman Huseynov, 2021. "Long and short memory in dynamic term structure models," CREATES Research Papers 2021-15, Department of Economics and Business Economics, Aarhus University.
    8. Orphanides, Athanasios & Wei, Min, 2012. "Evolving macroeconomic perceptions and the term structure of interest rates," Journal of Economic Dynamics and Control, Elsevier, vol. 36(2), pages 239-254.
    9. Todd E. Clark & Michael W. McCracken, 2010. "Averaging forecasts from VARs with uncertain instabilities," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(1), pages 5-29, January.
    10. Downing, Chris & Oliner, Stephen, 2007. "The term structure of commercial paper rates," Journal of Financial Economics, Elsevier, vol. 83(1), pages 59-86, January.
    11. Dick Dijk & Siem Jan Koopman & Michel Wel & Jonathan H. Wright, 2014. "Forecasting interest rates with shifting endpoints," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 29(5), pages 693-712, August.
    12. Geert Bekaert & Seonghoon Cho & Antonio Moreno, 2010. "New Keynesian Macroeconomics and the Term Structure," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(1), pages 33-62, February.
    13. Sharon Kozicki & Peter A. Tinsley, 2002. "Alternative sources of the lag dynamics of inflation," Research Working Paper RWP 02-12, Federal Reserve Bank of Kansas City.
    14. Adam Traczyk, 2013. "Financial integration and the term structure of interest rates," Empirical Economics, Springer, vol. 45(3), pages 1267-1305, December.
    15. Spencer, Peter & Liu, Zhuoshi, 2010. "An open-economy macro-finance model of international interdependence: The OECD, US and the UK," Journal of Banking & Finance, Elsevier, vol. 34(3), pages 667-680, March.
    16. Glenn D. Rudebusch & Eric T. Swanson & Tao Wu, 2006. "The Bond Yield "Conundrum" from a Macro-Finance Perspective," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 24(S1), pages 83-109, December.
    17. Ray Fair, 2008. "Estimating Term Structure Equations Using Macroeconomic Variables," Yale School of Management Working Papers amz2387, Yale School of Management.
    18. Bulkley, George & Giordani, Paolo, 2011. "Structural breaks, parameter uncertainty, and term structure puzzles," Journal of Financial Economics, Elsevier, vol. 102(1), pages 222-232, October.
    19. Shigenori Shiratsuka, 2021. "Monetary Policy Effectiveness under the Ultra-Low Interest Rate Environment: Evidence from Yield Curve Dynamics in Japan," Keio-IES Discussion Paper Series 2021-012, Institute for Economics Studies, Keio University.
    20. Marc Lavoie & Mario Seccareccia, 2019. "Macroeconomics and natural rates: some reflections on Pasinetti’s fair rate of interest," Bulletin of Political Economy, Bulletin of Political Economy, vol. 13(2), pages 139-165, December.

    More about this item

    Keywords

    Financial markets; Interest rates;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bca:bocsan:19-1. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/bocgvca.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.