Monetary Policy Statements, Treasury Yields, and Private Yields: Before and after the Zero Lower Bound

20 Pages Posted: 9 Apr 2013

See all articles by Michael T. Kiley

Michael T. Kiley

Board of Governors of the Federal Reserve System

Date Written: January 17, 2013

Abstract

Monetary policy actions since 2008 have influenced long-term interest rates through forward guidance and quantitative easing - both "unconventional" strategies. We examine whether the effect of such actions on Treasury yields have passed through to private yields to a degree comparable to experience before 2008. In order to perform this examination, we propose a strategy to identify the comovement between Treasury yields and private yields induced by monetary policy when an observable representing policy changes, such as changes in the interbank rate, is not available, or when other systematic factors may be important. Our strategy implies that least squares regressions, even within an event window, can be misleading, and our empirical results find evidence for such misleading effects. Implementation of our instrumental variables strategy suggests that the movements in Treasury yields induced by monetary policy statements have passed through to private yields, but to a sm aller degree than typical prior to the end of 2008. This may suggest that the effectiveness of unconventional policy actions in stimulating activity are attenuated relative to conventional policy actions.

Keywords: Monetary policy, Treasury yields, private yields

JEL Classification: E52, G14

Suggested Citation

Kiley, Michael T., Monetary Policy Statements, Treasury Yields, and Private Yields: Before and after the Zero Lower Bound (January 17, 2013). FEDS Working Paper No. 2013-16. Available at SSRN: https://ssrn.com/abstract=2246909 or http://dx.doi.org/10.2139/ssrn.2246909

Michael T. Kiley (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th and C Streets, NW
Washington, DC 20551
United States
202-452-2448 (Phone)
202-452-5296 (Fax)

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