RWP 19-09, November 2019; updated June 2020
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.
JEL Classification: F42; G15; E5
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 External Linkhttps://doi.org/10.18651/RWP2019-09