Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/95701 
Year of Publication: 
2013
Series/Report no.: 
Bank of Canada Working Paper No. 2013-37
Publisher: 
Bank of Canada, Ottawa
Abstract: 
We measure uncertainty surrounding the central bank's future policy rates using implied volatility computed from interest rate option prices and realized volatility computed from intraday prices of interest rate futures. Both volatility measures show that uncertainty decreased following the most important policy actions taken by the Bank of Canada as a response to the financial crisis of 2007 - 08, such as the conditional commitment of 2009 - 10, the unscheduled cut in the target rate coordinated with other major central banks, and the introduction of term purchase and resale agreements. We also find that, on average, uncertainty decreases following the Bank of Canada's policy rate announcements. Furthermore, our measures of policy rate uncertainty improve the estimation of policy rate expectations from overnight index swap (OIS) rates by predicting the risk premium in the OIS market.
Subjects: 
Uncertainty and monetary policy
Monetary and financial indicators
JEL: 
E4
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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