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Central bank communication and correlation between financial markets: Canada and the United States

Melanie-Kristin Beck, Bernd Hayo () and Matthias Neuenkirch ()

International Economics and Economic Policy, 2013, vol. 10, issue 2, 277-296

Abstract: We study the correlation between pairs of bond and stock markets in Canada and the United States between January 1998 and December 2009 in the framework of diagonal-BEKK models. Our research question is whether monetary policy actions and communications by the Bank of Canada and the Federal Reserve significantly affect the conditional co-movement of financial markets (i) within Canada and (ii) between Canada and the United States. We find that central bank communication significantly increases the correlation of financial markets within and across the two countries and is particularly important for the correlation of Canadian and US long-term interest rates. Copyright Springer-Verlag 2013

Keywords: Bank of Canada; Central bank communication; Diagonal-BEKK models; Dynamic correlations; Federal Reserve; Financial markets; E52; F30; G12; G15 (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1007/s10368-012-0211-x

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