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

November 19, 2019
By Karlye Dilts Stedman, Economist


Research Working PaperSpillovers from unconventional monetary policy abroad increase when the return to normalized policy is asynchronous.

This paper examines unconventional monetary policy (UMP) spillovers between advanced economies, exploiting the asynchronous timing of policy normalization to shed light on the term structure implications of UMP divergence. Using high frequency data to identify monetary policy and contemporaneous news, I find that spillovers increase during UMP and strengthen during asynchronous normalization. In fact, these spillovers in the asynchronous period appear to drive the increase in post-Lehman spillovers found elsewhere in the literature. Using a shadow rate term structure model, I find that international spillovers manifest through term premia, particularly at the effective lower bound. Identifying target, forward guidance, and Quantitative Easing (QE) shocks suggests term premium effects arise from QE and forward guidance, while target shocks do not generate spillovers.

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RWP 19-09, November 2019; revised June 2020

JEL Classification: F42; G15; E5

Article Citation

  • Dilts Stedman, Karlye. 2019. “Unconventional Monetary Policy, (A)Synchronicity and the Yield Curve.” Federal Reserve Bank of Kansas City, Research Working Paper no. 19-09, November. Available at https://doi.org/10.18651/RWP2019-09

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