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Can monetary policy surprises affect the term structure?

Edda Claus () and Mardi Dungey

Journal of Macroeconomics, 2016, vol. 47, issue PA, 68-83

Abstract: When monetary policy surprises financial markets, yields change but identifying the effects of these surprises on the yield curve is not a trivial exercise. Identification often involves assuming either that policy shocks are different to those on other news days (identification via heteroskedasticity) or, that they are the same (homogeneity). These monetary policy changes sometimes cause shifts in the yield curve and sometimes rotations. An additional identifying assumption is typically made whether this behavior reflects a single type of monetary policy shock or, whether two types of shocks are present. This paper applies a single theoretical framework to empirical evidence from Australia, Canada, New Zealand and the United States prior to and following the crisis events of 2008. The results support a complex structure which varies across countries and evidence of distinct change across the crisis period.

Keywords: Monetary policy shocks; Interest rates; Central bank preferences; Transparency; Latent factor model (search for similar items in EconPapers)
JEL-codes: E44 E52 C38 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:47:y:2016:i:pa:p:68-83

DOI: 10.1016/j.jmacro.2015.10.004

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