NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The October 1979 Change in the Monetary Regime: Its Impact on the "Forecastability" of Interest Rates

James E. Pesando, Andre Plourde

NBER Working Paper No. 1874
Issued in March 1986
NBER Program(s):   ME

Subsequent to the October 1979 shift in monetary policy in the United States, interest rates in North America not only reached unprecedented levels,but also exhibited unprecedented volatility. This paper shows that the anticipated quarterly changes in long-term rates associated with the rational expectations model have remained small during this post-shift period. Recorded forecasts of long-term interest rates in Canada continue to prove inferior to the no-change prediction of the martingale model. The "perverse" relationship between the slope of the yield curve and the subsequent movementin long-term rates exists in the Canadian data, but is of only modest value in a forecasting context. The excess return on long-term bonds implicit in the recorded forecasts of the level of interest rates varies sharply, yet there is no evidence that forecasters have identified a predictable component of a time-varying term premium.

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Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w1874

Published:

  • Pesando, James E. "The Impact of the Conversion Loan on the Term Structure of Interest Rates in Canada: Some Additional Evidence." The Canadian Journal of Economics / Revue canadienne d'Economique. Vol. 8, No. 2 (May, 1975) (pp. 281-288) ,
  • Journal of Finance, 1988, vol. 43, issue 1, pages 217-39

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