TY  - JOUR
AU  - Pesando,James E.
AU  - Plourde,Andre
TI  - The October 1979 Change in the Monetary Regime:  Its Impact on the "Forecastability" of Interest Rates
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1874
PY  - 1986
Y2  - March 1986
UR  - http://www.nber.org/papers/w1874
L1  - http://www.nber.org/papers/w1874.pdf
N1  - Author contact info:
James Pesando
Institute for Policy Analysis
University of Toronto
140 St. George Street
Toronto, Ont  M5S 1A1  CANADA
E-Mail: pesando@chass.utoronto.ca
AB  - 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.
ER  -