Economics, Econometrics and Finance
4 years ago

Treasury yields respond less to monetary policy actions than previously thought.

SSRN Electronic Journal
The Identification of the Response of Interest Rates to Monetary Policy Actions Using Market-Based Measures of Monetary Policy Shocks
Daniel L. Thornton

Paper Summary

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The study found that using market-based measures to estimate the impact of monetary policy on interest rates can lead to biased results. This is because both interest rates and market-based measures react to all news, not just news about monetary policy. By correcting for this bias, the study showed that the response of Treasury yields to monetary policy actions is actually smaller than previously thought.