Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/174320
Authors: 
Tillmann, Peter
Year of Publication: 
2017
Series/Report no.: 
Joint Discussion Paper Series in Economics 24-2017
Abstract: 
This paper studies the non-linear response of the term structure of interest rates to monetary policy shocks. We show that uncertainty about monetary policy changes the way the term structure responds to monetary policy. A policy tightening leads to a significantly smaller increase in long-term bond yields if policy uncertainty is high at the time of the shock. We also look at the decomposition of bond yields into expectations about policy and the term premium. The weaker response of yields is driven by the fall in term premia, which fall even more if uncertainty about policy is high. These findings are robust to the measurement of monetary policy uncertainty and the definition of the monetary policy shock. We argue that short-term uncertainty about monetary policy tends to make yields of longer maturities relatively more attractive. As a consequence, investors demand lower term premia. This intuition is supported by the fact that long-term monetary policy uncertainty leads to opposite effects with term premia increasing even more after a policy shock.
Subjects: 
Monetary policy uncertainty
term structure
term premium
unconventional monetary policy
local projections
JEL: 
E43
E58
G12
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.