Abstract
This paper analyzes, for the period 1975–1979, the announcement effect of the unanticipated Canadian administered Bank rate changes (the Bank rate is analogous to the discount rate in the U.S.) on the Canada-U.S. dollar spot exchange rate. Leading and/or lagged announcement effects are also investigated. By examining the behaviour of the residuals, on and surrounding the announced Bank rate changes, derived from an autoregressive equation of the daily changes (4:30 p.m. to noon the following day) in the logarithm of the spot $ Canadian/$ U.S. rate the evidence seems to indicate, on the average, a significant adjustment (appreciation of the Canadian dollar for Bank rate increases and depreciation for Bank rate decreases) of the exchange rate on the day of the effective unanticipated administered Bank rate changes regardless of the assumptions made with respect to the probability distribution of the residuals — whether it be normal, symmetric stable with a characteristic exponent of 1.8, or nonparametric.
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The author is grateful to three anonymous referees for their valuable comments, to Pierre Cloutier of the Bank of Canada for having provided all the data in a format ready for computer processing, and to John Kuiper for his help with the MATOP Programme.
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Apel, E. The administered Bank rate and the Canada-U.S. spot exchange rate: 1975–1979. Empirical Economics 11, 169–179 (1986). https://doi.org/10.1007/BF01978126
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DOI: https://doi.org/10.1007/BF01978126