Central Bank Communication and Correlation between Financial Markets: Canada and the United States

22 Pages Posted: 5 Jan 2012 Last revised: 9 Jul 2012

See all articles by Melanie-Kristin Beck

Melanie-Kristin Beck

affiliation not provided to SSRN

Bernd Hayo

University of Marburg - School of Business & Economics

Matthias Neuenkirch

University of Trier - Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: July 9, 2012

Abstract

We study the correlation between pairs of bond and stock markets in Canada and the United States between January 1998 and December 2009 in the framework of diagonal-BEKK models. Our research question is whether monetary policy actions and communications by the Bank of Canada and the Federal Reserve significantly affect the conditional co-movement of financial markets (i) within Canada and (ii) between Canada and the United States. We find that central bank communication significantly increases the correlation of financial markets within and across the two countries and is particularly important for the correlation of Canadian and US long-term interest rates.

Keywords: Bank of Canada, Central Bank Communication, Diagonal-BEKK Models, Dynamic Correlations, Federal Reserve, Financial Markets

JEL Classification: E52, F30, G12, G15

Suggested Citation

Beck, Melanie-Kristin and Hayo, Bernd and Neuenkirch, Matthias, Central Bank Communication and Correlation between Financial Markets: Canada and the United States (July 9, 2012). Available at SSRN: https://ssrn.com/abstract=1980123 or http://dx.doi.org/10.2139/ssrn.1980123

Melanie-Kristin Beck

affiliation not provided to SSRN ( email )

Bernd Hayo

University of Marburg - School of Business & Economics ( email )

Universitaetsstr. 24
Marburg, D-35032
Germany
++49(0)6421-28-23091 (Phone)
++49(0)6421-28-23193 (Fax)

Matthias Neuenkirch (Contact Author)

University of Trier - Faculty of Economics ( email )

Universit├Ątsring 15
Trier, 54296
Germany
+49 - (0)651 - 201 - 2629 (Phone)

HOME PAGE: http://www.uni-trier.de/index.php?id=50130

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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