The economic impact of yield curve compression: Evidence from euro area forward guidance and unconventional monetary policy

Robert Goodhead

European Economic Review, 2024, vol. 164, issue C

Abstract: Unconventional monetary policies have now been part of the toolkit of developed economy central banks for well over a decade. The question of how their effects have changed over time is therefore an important one. This paper studies the impact of multiple forms of monetary policy surprise for the case of the ECB. I employ a semi-parametric time-varying VAR-X framework, which allows one to chart the changing responses of a broad range of financial and macroeconomic variables simultaneously. I develop high-frequency series that separate forward guidance from yield curve compression surprises — the use of the latter allows one to learn about the effects of flattening yield curves through the history of the ECB, including those induced by its Expanded Asset Purchase Programme (APP). Forward guidance surprises are found to have their maximum impact on inflation when these policies were linked to the duration of the APP. Yield curve compression surprises are shown to transition from largely financial effects on equity markets and risk, to having a greater effect on prices at the time of the APP. However, the maximal effect of the APP on prices is found to occur after its maximal effect at flattening the yield curve, indicating delayed transmission.

Keywords: Monetary policy; TVP VAR; Quantitative easing; Forward guidance; Euro area (search for similar items in EconPapers)
JEL-codes: C11 C32 E30 E52 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S001429212400045X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:164:y:2024:i:c:s001429212400045x

DOI: 10.1016/j.euroecorev.2024.104716

Access Statistics for this article

European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

More articles in European Economic Review from Elsevier
Bibliographic data for series maintained by Catherine Liu ().