Macro-Financial Models of Canadian Dollar Interest Rate Swap Yields

Tanweer Akram and Khawaja Mamun

Economics Working Paper Archive from Levy Economics Institute

Abstract: This paper analyzes the dynamics of Canadian dollar-denominated (CAD) interest rate swap yields. It applies autoregressive distributive lag (ARDL) models, using monthly time series data, to estimate the effects of the current short-term interest rate and other relevant macro-financial variables on interest rate swap yields. It shows that the current short-term interest rate is a crucial driver of the swap yields of different maturity tenors. Similar patterns of interest rate swaps denominated in other hard currencies, such as the US dollar, euro, British pound sterling, and Japanese yen, have been discerned in previous empirical research testing the Keynesian hypothesis, which maintains that the current short-term interest rate has a decisive influence on the long-term interest rate. Thus, the findings of this paper lend additional support to the Keynesian hypothesis by showing that the same pattern holds for CAD interest rate swap yields. The results obtained in the paper can be useful for portfolio managers, corporate leaders, and policymakers.

Keywords: Canadian Dollar Swaps; Interest Rate Swap Yields; Short-Term Interest Rate; Monetary Policy; Bank of Canada (search for similar items in EconPapers)
JEL-codes: E43 E50 E60 G10 G12 (search for similar items in EconPapers)
Date: 2024-12
New Economics Papers: this item is included in nep-cba, nep-mon, nep-pke and nep-sea
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