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

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  • Karlye Dilts Stedman

Abstract

This paper examines international spillovers from unconventional monetary policy between the United States, the euro area, the United Kingdom and Japan, and assesses the influence of asynchronous policy normalization on the slope of the yield curve. 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 strengthen during 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, I find that such spillovers elicit revisions, domestically and internationally, 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.

Suggested Citation

  • Karlye Dilts Stedman, 2019. "Unconventional Monetary Policy, (A)Synchronicity and the Yield Curve," Research Working Paper RWP 19-9, Federal Reserve Bank of Kansas City.
    • Handle: RePEc:fip:fedkrw:rwp19-09
    DOI: 10.18651/RWP2019-09
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    File URL: https://www.kansascityfed.org/documents/3859/pdf-Unconventional%20Monetary%20Policy,%20(A)Synchronicity%20and%20the%20Yield%20Curve.pdf
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    Citations

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    Cited by:

    1. Smith, A. Lee & Valcarcel, Victor J., 2023. "The financial market effects of unwinding the Federal Reserve’s balance sheet," Journal of Economic Dynamics and Control, Elsevier, vol. 146(C).
    2. Anusha Chari & Karlye Dilts Stedman & Christian T. Lundblad, 2020. "Capital Flows in Risky Times: Risk-On / Risk-Off and Emerging Market Tail Risk," Research Working Paper RWP 20-08, Federal Reserve Bank of Kansas City.
    3. Karlye Dilts Stedman, 2020. "Unconventional Monetary Policy and International Interest Rate Spillovers," Economic Review, Federal Reserve Bank of Kansas City, vol. 105(no.2), pages 47-60, October.
    4. Cañon, Carlos & Gerba, Eddie & Pambira, Alberto & Stoja, Evarist, 2024. "An unconventional FX tail risk story," Journal of International Money and Finance, Elsevier, vol. 148(C).
    5. Christopher D. Cotton, 2022. "To What Degree and through Which Channel Do Central Banks Other Than the Federal Reserve Cause Spillovers?," Working Papers 23-3, Federal Reserve Bank of Boston.

    More about this item

    Keywords

    Monetary Policy; Spillovers;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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