E43 - Interest Rates: Determination, Term Structure, and Effects

• The Effect of Mortgage Rate Resets on Debt: Evidence from TransUnion (Part I)

  Staff Analytical Note 2020-2 Katya Kartashova

  This note studies how decreases in mortgage rates affect the behaviour of borrowers in terms of spending on durable goods and repaying debt.

  Content Type(s): Staff Research, Staff Analytical Notes Topic(s): Credit and credit aggregates, Housing, Interest rates, Monetary Policy, Transmission of monetary policy JEL Code(s): D, D1, D12, D14, E, E4, E43, E5, E52, G, G2, G21, R, R3, R31

• The Power of Helicopter Money Revisited: A New Keynesian Perspective

  Staff Discussion Paper 2020-1 Thomas J. Carter, Rhys R. Mendes

  We analyze money financing of fiscal transfers (helicopter money) in two simple New Keynesian models: a “textbook” model in which all money is non-interest-bearing (e.g., all money is currency), and a more realistic model with interest-bearing reserves.

  Content Type(s): Staff Research, Staff Discussion Papers Topic(s): Credibility, Economic models, Fiscal Policy, Inflation targets, Interest rates, Monetary Policy, Monetary policy framework, Transmission of monetary policy, Uncertainty and monetary policy JEL Code(s): E, E1, E12, E4, E41, E43, E5, E51, E52, E58, E6, E61, E63

• The Neutral Rate in Canada: 2019 Update

  Staff Analytical Note 2019-11 Thomas J. Carter, Xin Scott Chen, José Dorich

  This note provides an update on Bank of Canada staff’s assessment of the Canadian neutral rate. The neutral rate is the policy rate needed to keep output at its potential level and inflation at target once the effects of any cyclical shocks have dissipated. This medium- to long-run concept serves as a benchmark for gauging the degree of monetary stimulus provided by a given policy setting.

  Content Type(s): Staff Research, Staff Analytical Notes Topic(s): Economic models, Interest rates, Monetary Policy JEL Code(s): E, E4, E40, E43, E5, E50, E52, E58, F, F4, F41

• 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

• Disaggregating Household Sensitivity to Monetary Policy by Expenditure Category

  Staff Analytical Note 2018-32 Tony Chernis, Corinne Luu

  Because the Bank of Canada has started withdrawing monetary stimulus, monitoring the transmission of these changes to monetary policy will be important. Subcomponents of consumption and housing will likely respond differently to a monetary policy tightening, both in terms of the aggregate effect and timing.

  Content Type(s): Staff Research, Staff Analytical Notes Topic(s): Business fluctuations and cycles, Domestic demand and components, Econometric and statistical methods, Housing, Interest rates, Recent economic and financial developments, Transmission of monetary policy JEL Code(s): C, C3, C32, E, E2, E21, E22, E4, E43, E47, E5, E52

• Monetary Policy Uncertainty: A Tale of Two Tails

  Staff Working Paper 2018-50 Tatjana Dahlhaus, Tatevik Sekhposyan

  We document a strong asymmetry in the evolution of federal funds rate expectations and map this observed asymmetry into measures of monetary policy uncertainty. We show that periods of monetary policy tightening and easing are distinctly related to downside (policy rate is higher than expected) and upside (policy rate is lower than expected) uncertainty.

  Content Type(s): Staff Research, Staff Working Papers Topic(s): Business fluctuations and cycles, Econometric and statistical methods, Monetary policy communications, Transmission of monetary policy, Uncertainty and monetary policy JEL Code(s): C, C1, C18, C3, C32, E, E0, E02, E4, E43, E5, E52

• Assessing the Impact of Demand Shocks on the US Term Premium

  Staff Discussion Paper 2018-7 Russell Barnett, Konrad Zmitrowicz

  During and after the Great Recession of 2008–09, conventional monetary policy in the United States and many other advanced economies was constrained by the effective lower bound (ELB) on nominal interest rates. Several central banks implemented large-scale asset purchase (LSAP) programs, more commonly known as quantitative easing or QE, to provide additional monetary stimulus.

  Content Type(s): Staff Research, Staff Discussion Papers Topic(s): Financial markets, Interest rates, Monetary policy framework, Monetary policy implementation, Transmission of monetary policy JEL Code(s): E, E4, E43, E5, E52, E58, E6, E61, E65, G, G1, G12

• The Neutral Rate in Canada: 2018 Estimates

  Staff Analytical Note 2018-22 Xin Scott Chen, José Dorich

  The neutral nominal policy rate serves as a benchmark for assessing the degree of monetary stimulus and provides a medium- to long-run anchor for the policy rate. Since quantitative measures of the neutral rate are subject to considerable uncertainty, Bank staff rely on four different approaches to estimate the Canadian neutral rate.

  Content Type(s): Staff Research, Staff Analytical Notes Topic(s): Economic models, Interest rates, Monetary Policy JEL Code(s): E, E4, E40, E43, E5, E50, E52, E58, F, F4, F41