The Signaling Effects of Tightening and Easing Monetary Policy

Paul Hubert () and Rose Portier ()
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Paul Hubert: Centre de recherche de la Banque de France - Banque de France, OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po
Rose Portier: Centre de recherche de la Banque de France - Banque de France, UP1 - Université Paris 1 Panthéon-Sorbonne

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Abstract: This paper establishes the asymmetric transmission of monetary policy to euro area nominal yields. We document that the effect of easing monetary surprises is stronger than the effect of monetary tightening. The asymmetry holds beyond the nonlinearities related to the economic or financial environment and does not stem from information effects. We provide evidence that this asymmetry is driven by signals about the future policy path. Decomposing euro area interest rates between common and country-specific components, we show that the common component, likely capturing expectations of future short-term rates, generates the differentiated effects, and risk premium signals amplify the asymmetry. Using textual analysis to extract policymakers' signals about the future monetary policy space from press conferences, we find that central bank communication can affect this asymmetric transmission to yields. Our results suggest a key role for the signaling channel in determining longterm interest rates.

Keywords: Term structure; Asymmetric effects; Central Bank communication; Signaling; Long-term interest rates (search for similar items in EconPapers)
Date: 2025-05
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-05097460v1
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