Bank of Canada

Publications and Research

Title	Estimating the Impact of Monetary Policy Surprises on Fixed-Income Markets
Author(s)	Jason Andreou
Type	Bank of Canada Review article
Date of publication	Summer 2005
Language	English
Abstract	In the interest of better understanding the impact of the Bank of Canada's policy actions on bond and bill yields, Andreou assesses the impact of policy-rate announcements on short and long bonds over the period 1996 to 2004. To aid the analysis, policy actions are decomposed into expected and surprise components. He also examines whether the introduction of fixed announcement dates (FADs) has affected these results, including markets' perceptions. The main finding is that unexpected policy actions by the Bank have a significant effect on market rates at the shorter end of the yield curve, with the effect dissipating as the maturity increases. A second finding, that the impact on longer-term interest rates of a surprise action by the Bank has diminished since the introduction of the FADs, suggests that the Bank's long-term policy goals are well understood and credible.
Bank topic index	Credibility, Financial markets, Monetary policy and uncertainty
JEL classification

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