Unconventional Monetary Policy, (A)Synchronicity and the Yield Curve

Abstract

This paper examines unconventional monetary policy (UMP) spillovers to the United States, exploiting the asynchronous timing of policy normalization to shed light on the term structure implications of UMP divergence. Using high frequency data, I find that spillovers to the U.S. increase during UMP and strengthen during asynchronous normalization. Using a shadow rate term structure model, I find that spillovers to the U.S. manifest through term premia, particularly at the effective lower bound. Identifying target, forward guidance, and Quantitative Easing (QE) shocks suggests term premium effects arise from QE and forward guidance, while target shocks do not generate spillovers. I find further that spillovers (particularly to term premia) increase as debt available for purchase by the private sector decreases.

JEL Classification: F42; G15; E5