The Economic Impact of Yield Curve Compression: Evidence from Euro Area Conventional and Unconventional Monetary Policy

Robert Goodhead
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Robert Goodhead: Central Bank of Ireland

No 13/EL/19, Economic Letters from Central Bank of Ireland

Abstract: This Economic Letter studies the eects of conventional and unconventional monetary policy on nancial and macroeconomic variables using euro area data. I use market movements during meeting days of the ECB Governing Council as measures of policy surprises and then distinguish between conventional and unconventional surprises in a general way. Surprises that reduce rates and steepen the yield curve are understood to represent conventional policy, and surprises that reduce rates and atten the yield curve as unconventional policy. I study the eects of these surprises in an empirical model of the euro area macroeconomy. I provide conditional and unconditional forecasts of key euro area aggregates under dierent policy actions by the ECB Governing Council. Unconventional monetary policy surprises are found to have strong effects on macroeconomic variables, though they have a somewhat delayed effect relative to conventional policy.

Date: 2019-11
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
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