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Monetary policy statements, Treasury yields, and private yields: before and after the zero lower bound

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  • Michael T. Kiley

Abstract

Monetary policy actions since 2008 have influenced long-term interest rates through forward guidance and quantitative easing - both "unconventional" strategies. We examine whether the effect of such actions on Treasury yields have passed through to private yields to a degree comparable to experience before 2008. In order to perform this examination, we propose a strategy to identify the comovement between Treasury yields and private yields induced by monetary policy when an observable representing policy changes, such as changes in the interbank rate, is not available, or when other systematic factors may be important. Our strategy implies that least squares regressions, even within an event window, can be misleading, and our empirical results find evidence for such misleading effects. Implementation of our instrumental variables strategy suggests that the movements in Treasury yields induced by monetary policy statements have passed through to private yields, but to a smaller degree than typical prior to the end of 2008. This may suggest that the effectiveness of unconventional policy actions in stimulating activity are attenuated relative to conventional policy actions.

Suggested Citation

  • Michael T. Kiley, 2013. "Monetary policy statements, Treasury yields, and private yields: before and after the zero lower bound," Finance and Economics Discussion Series 2013-16, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2013-16
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    References listed on IDEAS

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    Cited by:

    1. Yellen, Janet L., 2011. "Improving the international monetary and financial system : a speech at the Banque de France International Symposium, Paris, France, March 4, 2011," Speech 565, Board of Governors of the Federal Reserve System (U.S.).
    2. Thornton, John & Vasilakis, Chrysovalantis, 2017. "Inflation targeting and the cyclicality of monetary policy," Finance Research Letters, Elsevier, vol. 20(C), pages 296-302.
    3. Kiley, Michael T., 2016. "Monetary policy statements, treasury yields, and private yields: Before and after the zero lower bound," Finance Research Letters, Elsevier, vol. 18(C), pages 285-290.
    4. Linda S. Goldberg & Christian Grisse, 2013. "Time variation in asset price responses to macro announcements," Staff Reports 626, Federal Reserve Bank of New York.
    5. Gabriel Chodorow-Reich, 2014. "Effects of Unconventional Monetary Policy on Financial Institutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 45(1 (Spring), pages 155-227.
    6. repec:eee:finlet:v:24:y:2018:i:c:p:186-192 is not listed on IDEAS
    7. Kahn, George A. & Taylor, Lisa, 2014. "Evolving market perceptions of Federal Reserve policy objectives," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 5-64.
    8. Bernanke, Ben S., 2014. "The Federal Reserve: Looking Back, Looking Forward : a speech at the Annual Meeting of the American Economic Association, Philadelphia, Pennsylvania, January 3, 2014," Speech 792, Board of Governors of the Federal Reserve System (U.S.).

    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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