US Monetary Policy and International Bond Markets

Abstract

This paper uses high-frequency data to analyze the effects of US monetary policy-during the conventional and unconventional policy regimes-on foreign government bonds markets in advanced and emerging market economies. The results indicate that an expansionary US monetary policy steepens the foreign yield curve-denominated in local currency-during a conventional US monetary policy regime and flattens the foreign yield curve during an unconventional policy regime. The passthrough of unconventional US monetary policy to foreign bond yields is, on balance, comparable to that of conventional policy. In addition a conventional US monetary easing leads to a significant narrowing of the credit spreads on dollar-denominated sovereign bonds that are issued by countries with a speculative-grade sovereign credit rating. However, during the unconventional policy regime, yields on speculative-grade sovereign debt denominated in dollars move one-to-one with yields on comparable-maturity US Treasury securities.JEL Classification: E4, E5, F3

Measuring the Effects of Federal Reserve Forward Guidance and Asset Purchases on Financial Markets

“…Given that this FOMC announcement placed such a large emphasis on asset purchases, contract, scaled as above, and define that to be the federal funds rate factor; I take the 30-minute change in the 2-year Treasury yield, regress that on a constant and the federal funds rate factor, and define the residuals to be the forward guidance factor; and I take the 30-minute change in the 10-year Treasury yield, regress that on a constant and the first two factors, and define the residuals to be the LSAP factor. This is essentially the same approach taken in very recent papers by Rogers, Scotti, and Wright (2018) and Gilchrist, Yue, and Zakrajsek (2018), although the latter authors do not distinguish between changes in the federal funds rate and forward guidance.…”

Corporate Disclosure in Times of Expansionary Monetary Policy.

“…***, **, and * denote statistical significance at the 0.01, 0.05, and 0.10 levels, respectively. Panel A: Alternative measures for monetary policy changes Gilchrist et al (2015Gilchrist et al ( , 2019 in indicating the key FOMC meetings between 2008 and 2015 that announce unconventional monetary policy, including implementing the QE program or providing forward guidance. The unconventional policy during this particular period was intended to further stimulate the economy and thus could be classified as expansionary monetary policy.…”

“…we followGilchrist et al (2015);Gilchrist et al (2019) in indicating the key FOMC meetings between 2008 and 2015 announcing the unconventional expansionary monetary policies, including the implementation of QE programs or the provision of forward guidance. Announcement details are listed in Appendix B.…”

ECB Spillovers and Domestic Monetary Policy Effectiveness in Small Open Economies

“…is dominated by studies looking at spillovers from the Fed to emerging market economies (e.g. Takats and Vela (2014), Chen et al (2014), Tillmann (2016), Gilchrist et al (2018)) and between advanced economies (e.g. Ehrmann et al (2011), Rogers et al (2016), Bauer and Neely (2014), Neely (2015)).…”