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Canadian Interest Rate Setting: The Information Content of Canadian and U.S. Central Bank Communication

Bernd Hayo and Matthias Neuenkirch ()

No 200935, MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: We explain Canadian target rate decisions using macroeconomic variables as well as Bank of Canada (BOC) and Federal Reserve (Fed) communication indicators. Econometrically, we employ an ordered probit model of a Taylor rule to explain and predict 60 target rate decisions between 1998 and 2006. We find that communications, and most especially speeches and testimony by Canadian Governing Council members, provide a significant and robust explanation of Canadian target rate decisions. However, prior to the introduction of fixed announcement dates, Canadian communications contained more information on upcoming policy moves. Finally, communications by the U.S. Federal Reserve Bank—which are much more frequent—outperform our Canadian communication indicators in explaining Canadian interest rate decisions.

Keywords: Bank of Canada; Central Bank Communication; Federal Reserve Bank; Interest Rate Decision; Monetary Policy; Ordered Probit Model; Taylor Rule (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2009
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http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/35-2009_hayo.pdf Third version, 2010 (application/pdf)

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Journal Article: Canadian Interest Rate Setting: The Information Content of Canadian and U.S. Central Bank Communication (2011) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:mar:magkse:200935

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