US-Euro Area Term Structure Spillovers, Implications for Central Banks

40 Pages Posted: 3 Feb 2017

See all articles by Ken Nyholm

Ken Nyholm

European Central Bank (ECB)

Date Written: November 17, 2016


Spillovers between the US and euro area term structures of interest rates are examined. Implications for monetary policy are investigated using term-structure metrics that proxy conventional and unconventional instruments, i.e. the short rate, the 10 year term premium, and the 10 year risk-free rate. A new discrete-time arbitrage-free term structure model is used to extract these variables, at a daily frequency during the period covering 2005 to 2016. Relying on forecast error variance decompositions, following Diebold and Yilmaz (2009), it is found that transatlantic spillovers have increased by approximately 11%-points during the examined period, making it more difficult for central banks to directly assess the impact of their policies.

Keywords: yield curve modelling, monetary policy, international spillovers

JEL Classification: C32, E43, E58

Suggested Citation

Nyholm, Ken, US-Euro Area Term Structure Spillovers, Implications for Central Banks (November 17, 2016). ECB Working Paper No. 1980, Available at SSRN:

Ken Nyholm (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

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