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The effects of conventional and unconventional monetary policy: Identification through the yield curve

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  • Kortela, Tomi
  • Nelimarkka, Jaakko

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.

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  • Kortela, Tomi & Nelimarkka, Jaakko, 2020. "The effects of conventional and unconventional monetary policy: Identification through the yield curve," Bank of Finland Research Discussion Papers 3/2020, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp2020_003
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    More about this item

    Keywords

    Unconventional monetary policy; structural VAR; zero lower bound; term structureof interest rates;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling

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