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The convenience yield channel of monetary policy and international stock prices

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  • Alam, M. Jahangir
  • Sardar, Md. Rashedur Rahman
  • Schaffer, Matthew

Abstract

Krishnamurthy and Lustig (2019) propose a convenience yield monetary policy channel, whereby Federal Reserve decisions affect global financial variables through their effect on the convenience yield of dollar-denominated safe assets. We document that this channel contributes to the spillover of Fed policy to international stock markets. Following a surprise monetary tightening, the convenience yield differential between US Treasuries and equivalent foreign government bonds widens. A monetary policy-induced increase in the convenience yield differential thus leads to a decline in international stock indexes.

Suggested Citation

  • Alam, M. Jahangir & Sardar, Md. Rashedur Rahman & Schaffer, Matthew, 2026. "The convenience yield channel of monetary policy and international stock prices," Finance Research Letters, Elsevier, vol. 98(C).
    • Handle: RePEc:eee:finlet:v:98:y:2026:i:c:s1544612326003569
    DOI: 10.1016/j.frl.2026.109826
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    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F30 - International Economics - - International Finance - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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