The Effects of Conventional and Unconventional Monetary Policy: Identification through the Yield Curve

45 Pages Posted: 31 Jan 2020

See all articles by Tomi Kortela

Tomi Kortela

Bank of Finland - Monetary Policy

Jaakko Nelimarkka

Ministry of Finance, Finland; University of Helsinki - Department of Political and Economic Studies

Date Written: January 22, 2020

Abstract

Since the Great Recession, the main evolution in monetary policy has been its attempts to affect the medium and the long-term interest rates with instruments other than the policy rate. Consequently, measuring the stance of monetary policy by a single interest rate becomes problematic. This study explores the macroeconomic effects of conventional and unconventional policy measures in the euro area in a unified framework. We identify simultaneously three monetary policy shocks that influence different parts of the yield curve. These shocks reflect various aspects of actions and communications of the European Central Bank in conventional and unconventional monetary policy periods. According to the results, conventional interest rate policy, forward guidance and quantitative easing have asymmetric output and price responses.

Keywords: Unconventional monetary policy, structural VAR, zero lower bound, term structure of interest rates

JEL Classification: C32, C36, E43, E52, C54

Suggested Citation

Kortela, Tomi and Nelimarkka, Jaakko, The Effects of Conventional and Unconventional Monetary Policy: Identification through the Yield Curve (January 22, 2020). Bank of Finland Research Discussion Paper No. 3/2020, Available at SSRN: https://ssrn.com/abstract=3527677

Tomi Kortela (Contact Author)

Bank of Finland - Monetary Policy ( email )

PO Box 160
00101 Helsinki
Finland

Jaakko Nelimarkka

Ministry of Finance, Finland ( email )

Snellmaninkatu 1 A
PO BOX 28
FIN-00023, 00170
Finland

University of Helsinki - Department of Political and Economic Studies ( email )

P.O. Box 54
FIN-00014 Helsinki
Finland

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
87
Abstract Views
359
rank
330,636
PlumX Metrics