Measuring Monetary Policy Spillovers between U.S. And German Bond Yields

24 Pages Posted: 6 Jun 2018 Last revised: 29 Apr 2020

See all articles by Stephanie E. Curcuru

Stephanie E. Curcuru

Board of Governors of the Federal Reserve System

Michiel De Pooter

Board of Governors of the Federal Reserve System

George Eckerd

Georgetown University; JPMorgan Chase Institute

Date Written: 2018-04

Abstract

In this paper we estimate the magnitude of spillovers between bond markets in the U.S. and Germany following monetary policy communications by the FOMC and the ECB. The identification of policy-related co-movements following FOMC announcements, in particular, can be difficult because many foreign bond markets, including those in Germany, are closed at the time of the announcement. To address this issue we use intraday futures market data to estimate spillovers during a narrow and overlapping event window. We find that about half of the reaction in German domestic yields spills over to U.S. yields following ECB announcements, which is nearly identical to the spillover from U.S. yields to German Bund yields following FOMC announcements. This result contrasts with the conventional wisdom that FOMC announcements spill over to other countries but that there is not much effect in the other direction. We also find that spillover estimates are slightly higher in the post-crisis period, but that there is little difference in the spillover impact of conventional versus unconventional monetary policy. Our results based on futures prices differ noticeably from those using daily prices, which suggests that spillover estimates based on cash market data can be misleading.

Keywords: Monetary policy, Quantitative easing, Interest rate differentials

JEL Classification: E5, F3

Suggested Citation

Curcuru, Stephanie E. and De Pooter, Michiel and Eckerd, George, Measuring Monetary Policy Spillovers between U.S. And German Bond Yields (2018-04). FRB International Finance Discussion Paper No. 1226, Available at SSRN: https://ssrn.com/abstract=3187707 or http://dx.doi.org/10.17016/IFDP.2018.1226

Stephanie E. Curcuru (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th and C Streets, NW
Washington, DC 20551
United States

Michiel De Pooter

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

George Eckerd

Georgetown University ( email )

Washington, DC
United States

JPMorgan Chase Institute ( email )

601 Pennsylvania Avenue NW
Washington, DC 20004
United States

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