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Can monetary policy surprises affect the term structure?

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  • Claus, Edda
  • Dungey, Mardi

Abstract

When monetary policy surprises financial markets, yields change but identifying the effects of these surprises on the yield curve is not a trivial exercise. Identification often involves assuming either that policy shocks are different to those on other news days (identification via heteroskedasticity) or, that they are the same (homogeneity). These monetary policy changes sometimes cause shifts in the yield curve and sometimes rotations. An additional identifying assumption is typically made whether this behavior reflects a single type of monetary policy shock or, whether two types of shocks are present. This paper applies a single theoretical framework to empirical evidence from Australia, Canada, New Zealand and the United States prior to and following the crisis events of 2008. The results support a complex structure which varies across countries and evidence of distinct change across the crisis period.

Suggested Citation

  • Claus, Edda & Dungey, Mardi, 2016. "Can monetary policy surprises affect the term structure?," Journal of Macroeconomics, Elsevier, vol. 47(PA), pages 68-83.
  • Handle: RePEc:eee:jmacro:v:47:y:2016:i:pa:p:68-83
    DOI: 10.1016/j.jmacro.2015.10.004
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    Cited by:

    1. Marfatia, Hardik A. & Gupta, Rangan & Cakan, Esin, 2017. "The international REIT’s time-varying response to the U.S. monetary policy and macroeconomic surprises," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 640-653.
    2. Georgios Georgiadis & Martina Jancokova, 2017. "Financial Globalisation, Monetary Policy Spillovers and Macro-modelling: Tales from 1001 Shocks," GRU Working Paper Series GRU_2017_008, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    3. Mardi Dungey, 2016. "Comments on "Monetary independence in a financially integrated world: what do measures of interest rate co-movement tell us?"," BIS Papers chapters,in: Bank for International Settlements (ed.), Expanding the boundaries of monetary policy in Asia and the Pacific, volume 88, pages 207-212 Bank for International Settlements.

    More about this item

    Keywords

    Monetary policy shocks; Interest rates; Central bank preferences; Transparency; Latent factor model;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis

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