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Volume 65, Issue 2

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Interactions of Unconventional Monetary Policy Measures with the Euro Area Yield Curve

Gertler, Lubomira

Year: 2015   Volume: 65   Issue: 2   Pages: 106-126

Abstract: We study how unconventional monetary policy affects the shape of the yield curve and, conversely, the predictive power of short-run yield curve dynamics for the policy event. Two types of unconventional monetary policy measures are analysed: i) announcements and actions related to extension of central bank liquidity and ii) secondary market purchases. We find that ex-post effects on the shape of the yield curve differ substantially both in size and direction. Specifically, sovereign debt purchases are found to instantaneously lower and flatten the curve, while liquidity related actions steepen the curve, albeit mildly and for a very limited time. Further to that, the predictive power of yield curve dynamics in relation to policy implementation is supportive only for the latter signal. These findings broadly align both with the design of unconventional policy measures and with the horizon in which they are deemed to become effective.

JEL classification: C38, C51, E43, G14, G32

Keywords: yield curve, Nelson-Siegel term structure approximation, liquidity, unconventional monetary policy

RePEc: http://ideas.repec.org/a/fau/fauart/v65y2015i2p106-126.html

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