The October 1979 Change in the U.S. Monetary Regime: Its Im

Before the October 1979 shift in monetary policy in the US, interest rates in North America not only attained unprecedented levels but also showed unprecedented volatility. Using data on Canadian Treasury bills and government and corporate bonds, it is demonstrated that anticipated quarterly changes...

Full description

Saved in:
Bibliographic Details
Published in:The Journal of finance (New York) 1988-03, Vol.43 (1), p.217
Main Authors: Pesando, James E, Plourde, Andre
Format: Article
Language:English
Subjects:
Economic models
Federal Reserve monetary policy
Forecasting
Impacts
Interest rates
Long term
Rational expectations
Statistical analysis
Yield
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Before the October 1979 shift in monetary policy in the US, interest rates in North America not only attained unprecedented levels but also showed unprecedented volatility. Using data on Canadian Treasury bills and government and corporate bonds, it is demonstrated that anticipated quarterly changes in long-term rates associated with the rational-expectations model have stayed small during this post-shift period. Examination is made of 3 sets of recorded forecasts of long-term interest rates in Canada, and the failure to improve upon the no-change prediction is noted. The "perverse" relationship between the slope of the yield curve and the subsequent movement in long-term rates is present in the Canadian data but is of only modest value in a forecasting setting. The excess returns on long-term bonds implicit in the recorded forecasts of the level of interest rates differ sharply although there is little evidence that forecasters have identified a predictable component of time-varying term premia.
ISSN:0022-1082
1540-6261