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Unconventional Monetary Policy Spillovers and the (In)convenience of Treasuries

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  • Karlye Dilts Stedman
  • Andrew Hanson

Abstract

Using high frequency data, we find that spillovers to the U.S. yield curve from the European Central Bank increased following the Global Financial Crisis, and strengthened when the U.S. normalized policy out of sync with other advanced economies. These spillovers were amplified by a contemporaneous waning in the ”convenience” of Treasuries. This provides evidence for a portfolio balance channel of transmission that is time-varying based on the non-pecuniary characteristics of Treasuries. We rationalize these facts using a two-country model of preferred habitat investors, where time-varying price-elasticity of demand for Treasuries gives rise to time-varying spillovers.

Suggested Citation

  • Karlye Dilts Stedman & Andrew Hanson, 2025. "Unconventional Monetary Policy Spillovers and the (In)convenience of Treasuries," Research Working Paper RWP 25-10, Federal Reserve Bank of Kansas City.
    • Handle: RePEc:fip:fedkrw:101728
    DOI: 10.18651/RWP2025-10
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    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
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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