Pierre Siklos

Cointegration and Threshold Adjustment

One important development in the recent time-series literature is the examination of non linear adjustment mechanisms. Much of the impetus for this interest stems from a large number of studies showing that key macroeconomic variables such as real GDP, unemployment, and industrial production display asymmetric adjustment over the course of the business cycle. For example, Neftci (1984), Falk (1986), DeLong and Summers (1988), Terasvirta and Anderson (1992), Sichel (1993), Beaudry and Koop (1993), Potter (1995), Ramsey and Rothman (1996) and Bradley and Jensen (1997) all support various forms of asymmetric adjustment in one or more of these variables.

Exchange rates, central bank news and the zero lower bound*

ABSTRACT The zero lower bound (ZLB) may restrict the responsiveness of exchange rates to news. A proxy for central bank communication is added as a determinant in a model of exchange rate movements. Two reserve currencies, the British pound and euro, and two currencies of small open economies, the Canadian dollar and Swedish krona, are examined. Reserve currencies are more vulnerable to the ZLB constraint, while the currencies of small open economies become more responsive to foreign central bank announcements. Certain unconventional monetary policy announcements were found to significantly impact exchange rates at the ZLB.

When is Lift-Off? Evaluating Forward Guidance from the Shadow

We examine the record of the CD Howe’s shadow Monetary Policy Council (SMPC) in Canada. We report a considerable diversity of opinion about the recommended future path of interest rates inside the SMPC. During the period of Bank of Canada forward guidance, market determined forward rates diverge considerably from the recommendations implied by the SMPC. Nevertheless, there is little evidence that the Bank of Canada and the SMPC coordinate their future views about the interest rate path. Finally, changes in views about future changes in policy rates for horizons beyond the next two interest rate decisions are difficult to explain. Our findings imply that there remain challenges in understanding the evolution of future interest rate paths over time. We conclude with some policy implications.

News, Selectivity Bias, and Financial Asset Prices: A Study of Five Countries

This paper considers the problem of explaining daily movements in interest rates and exchange rates and the role of news events. Data covering the period 1991-97 from Canada, France, Germany, Italy, and the UK, as well as the US, are used to show that how one defines news can have a significant impact on the mean and volatility of financial asset prices. We introduce the notion of selectivity bias in news events and posit that it may proxy a risk premium of sorts. In addition, we find significant meteor shower type effects among the countries in our sample. More importantly, perhaps, we find that news has a more siginificant influence, in an econometric sense, than other studies have reported. Nevertheless,we concur that modeling trading activity remains an important missing element in explaining high frequency variation in financial asset prices.