Modelling the duration of interest rate spells under inflation targeting in Canada

R. Shih and D. E. Giles

Applied Economics, 2009, vol. 41, issue 10, 1229-1239

Abstract: We use survival models to analyse the duration of the spells associated with the interest rate used by the Bank of Canada as its monetary policy instrument. Both nonparametric and parametric models are estimated, allowing for right-censoring of the data, and time-varying covariates. We find that the data are explained well by an accelerated failure time Weibull model, with the annual rate of inflation and the quarterly rate of growth in Gross domestic product (GDP) as covariates. The model indicates that there is positive duration dependence in the interest rate spells, and that unemployment and exchange rate effects are insignificant.

Date: 2009
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DOI: 10.1080/00036840701721232

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