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Title:McCallum rules, exchange rates, and the term structure of interest rates PDF Logo
Authors:Diez de los Rios, Antonio
Issue Date:2008
Series/Report no.:Bank of Canada Working Paper 2008,43
Abstract:McCallum (1994a) proposes a monetary rule where policymakers have some tendency to resist rapid changes in exchange rates to explain the forward premium puzzle. We estimate this monetary policy reaction function within the framework of an affine term structure model to find that, contrary to previous estimates of this rule, the monetary authorities in Canada, Germany and the U.K. respond to nominal exchange rate movements. Our model is also able to replicate the forward premium puzzle.
Subjects:Exchange rates
Interest rates
Transmission of monetary policy
JEL:E43
F31
G12
G15
Document Type:Working Paper
Appears in Collections:Bank of Canada Working Papers

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