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Measuring Uncertainty in Monetary Policy Using Realized and Implied Volatility

Bo Young Chang and Bruno Feunou ()

Bank of Canada Review, 2014, vol. 2014, issue Spring, 32-41

Abstract: Uncertainty surrounding the Bank of Canada’s future policy rates is measured using implied volatility computed from interest rate options and realized volatility computed from intraday prices of interest rate futures. Both volatility measures show that uncertainty decreased following major policy actions taken by the Bank in response to the 2007–09 financial crisis. Findings also indicate that, on average, uncertainty decreases following the Bank’s policy rate announcements.

Date: 2014
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Handle: RePEc:bca:bcarev:v:2014:y:2014:i:spring14:p:32-41