Unconventional Monetary Policy Spillovers and the (In)convenience of Treasuries

Karlye Dilts Stedman and Andrew Hanson

No RWP 25-10, Research Working Paper from Federal Reserve Bank of Kansas City

Abstract: Using high frequency data, we find that spillovers to the U.S. yield curve from the European Central Bank increased following the Global Financial Crisis, and strengthened when the U.S. normalized policy out of sync with other advanced economies. These spillovers were amplified by a contemporaneous waning in the ”convenience” of Treasuries. This provides evidence for a portfolio balance channel of transmission that is time-varying based on the non-pecuniary characteristics of Treasuries. We rationalize these facts using a two-country model of preferred habitat investors, where time-varying price-elasticity of demand for Treasuries gives rise to time-varying spillovers.

Keywords: treasuries; Convenience yield; monetary policy; international spillovers; quantitative easing; quantitative tightening; preferred habitat (search for similar items in EconPapers)
JEL-codes: E44 E52 F42 G12 (search for similar items in EconPapers)
Pages: 79
Date: 2025-09-04
New Economics Papers: this item is included in nep-cba, nep-eec, nep-ifn, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedkrw:101728

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DOI: 10.18651/RWP2025-10

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