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

73 Pages Posted: 24 Nov 2019

See all articles by Karlye Dilts Stedman

Karlye Dilts Stedman

Federal Reserve Bank of Kansas City; University of North Carolina (UNC) at Chapel Hill, College of Arts and Sciences, Department of Economics

Date Written: October 30, 2019

Abstract

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

Dilts Stedman, Karlye, Unconventional Monetary Policy, (A)Synchronicity and the Yield Curve (October 30, 2019). Available at SSRN: https://ssrn.com/abstract=3490260 or http://dx.doi.org/10.2139/ssrn.3490260

Karlye Dilts Stedman (Contact Author)

Federal Reserve Bank of Kansas City ( email )

1 Memorial Dr.
Kansas City, MO 64198
United States

University of North Carolina (UNC) at Chapel Hill, College of Arts and Sciences, Department of Economics ( email )

Chapel Hill, NC 27599
United States

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