Unconventional Monetary Policy, (A)Synchronicity and the Yield Curve
73 Pages Posted: 24 Nov 2019
Date Written: October 30, 2019
This paper examines international spillovers from unconventional monetary policy (UMP) between the US, the Euro area, the UK and Japan, exploiting the asynchronous timing of monetary policy normalization to shed light on the term structure implications of UMP divergence. Using high frequency futures data to identify monetary policy surprises and controlling for contemporaneous news, I find that spillovers increase during periods of unconventional monetary policy, and that these strengthen in the period of asynchronous policy normalization. Local projections suggest persistent spillovers from the Federal Reserve, whereas other spillovers fade quickly. Through the lens of a shadow rate term structure model (SRTSM), I find that these surprises elicit, domestically and internationally, revisions to both the expected path of short-term interest rates and required risk compensation, with the latter gaining importance at the effective lower bound of interest rates.
JEL Classification: F42; G15; E5
Suggested Citation: Suggested Citation