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Measuring Monetary Policy Spillovers between U.S. and German Bond Yields

Stephanie E. Curcuru, Michiel De Pooter and George Eckerd

No 1226, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: In this paper we estimate the magnitude of spillovers between bond markets in the U.S. and Germany following monetary policy communications by the FOMC and the ECB. The identification of policy-related co-movements following FOMC announcements, in particular, can be difficult because many foreign bond markets, including those in Germany, are closed at the time of the announcement. To address this issue we use intraday futures market data to estimate spillovers during a narrow and overlapping event window. We find that about half of the reaction in German domestic yields spills over to U.S. yields following ECB announcements, which is nearly identical to the spillover from U.S. yields to German Bund yields following FOMC announcements. This result contrasts with the conventional wisdom that FOMC announcements spill over to other countries but that there is not much effect in the other direction. We also find that spillover estimates are slightly higher in the post-crisis period, but that there is little difference in the spillover impact of conventional versus unconventional monetary policy. Our results based on futures prices differ noticeably from those using daily prices, which suggests that spillover estimates based on cash market data can be misleading.

Keywords: Monetary policy; Quantitative easing; Interest rate differentials (search for similar items in EconPapers)
JEL-codes: E5 F3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
Date: 2018-04
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1226

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DOI: 10.17016/IFDP.2018.1226

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