Does monetary policy uncertainty moderate the transmission of policy shocks to government bond yields?

Shan Ying, Jeffrey Sheen, Xin Gu and Ben Zhe Wang

Journal of International Money and Finance, 2025, vol. 154, issue C

Abstract: How does the FED’s monetary policy uncertainty generated by Federal Open Market Committee (FOMC) communications affect the impact of monetary policy shocks on market interest rates? We measure perceived monetary policy uncertainty from changes in short-term option prices around FOMC announcements and show that it is related to measures of uncertainty communicated through policy announcements and also to how policy commitment is communicated. Monetary policy uncertainty primarily moderates the impact of forward guidance shocks on long-term government bond yields. Our results suggest this moderation process is delivered through changes in the term premium component rather than the expected component of yields.

Keywords: Monetary policy uncertainty; Monetary policy surprises; Forward guidance; Bond yields (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:154:y:2025:i:c:s0261560625000567

DOI: 10.1016/j.jimonfin.2025.103321

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