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The Response of Sovereign Bond Yields to U.S. Monetary Policy

In: Monetary Policy through Asset Markets: Lessons from Unconventional Measures and Implications for an Integrated World

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  • Simon Gilchrist

    (Boston University)

  • Vivian Z. Yue

    (Emory University)

  • Egon Zakrajšek

    (Federal Reserve Board)

Abstract

This paper compares the effects of U.S. conventional monetary policy on foreign government bond yields with those of the unconventional measures employed after the target federal funds rate hit the effective lower bound (ELB). For the ELB period, we identify two U.S. monetary policy surprises: (i) changes in the 2-year Treasury yield around policy announcements; and (ii) changes in the 10-year Treasury yield that are orthogonal to those in the 2-year yield. We find that the U.S. monetary policy has a pronounced effect on both the short- and long-term interest rates for advanced foreign economies: an expansionary U.S. monetary policy steepens the foreign yield curve during the conventional period and flattens the foreign yield curve during the unconventional period. In general, the average international spillover of U.S. unconventional policy is comparable to that of conventional policy; there are, however, significant differences in the degree of spillovers across advanced economies and emerging economies.
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Suggested Citation

  • Simon Gilchrist & Vivian Z. Yue & Egon Zakrajšek, 2016. "The Response of Sovereign Bond Yields to U.S. Monetary Policy," Central Banking, Analysis, and Economic Policies Book Series, in: Elías Albagli & Diego Saravia & Michael Woodford (ed.),Monetary Policy through Asset Markets: Lessons from Unconventional Measures and Implications for an Integrated World, edition 1, volume 24, chapter 8, pages 257-283, Central Bank of Chile.
  • Handle: RePEc:chb:bcchsb:v24c08pp257-283
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    2. Stavrakeva, Vania & Tang, Jenny, 2019. "The Dollar During the Great Recession: US Monetary Policy Signaling and The Flight To Safety," CEPR Discussion Papers 14034, C.E.P.R. Discussion Papers.
    3. Ricardo J. Caballero & Gunes Kamber, 2019. "On the Global Impact of Risk-off Shocks and Policy-put Frameworks," NBER Working Papers 26031, National Bureau of Economic Research, Inc.
    4. Domenico Lombardi & Pierre L. Siklos & Samantha St. Amand, 2019. "Asset Price Spillovers from Unconventional Monetary Policy: A Global Empirical Perspective," International Journal of Central Banking, International Journal of Central Banking, vol. 15(2), pages 43-74, June.
    5. Vania Stavrakeva & Jenny Tang, 2018. "The dollar during the global recession: US monetary policy and the exorbitant duty," Working Papers 18-10, Federal Reserve Bank of Boston.
    6. Jongrim Ha, 2020. "Nonlinear transmission of U.S. monetary policy shocks to international financial markets," International Finance, Wiley Blackwell, vol. 23(3), pages 350-369, December.

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