Abstract
How does the FED's monetary policy uncertainty generated by Federal Open Market Committee (FOMC) communications affect the impact of monetary policy shocks on market interest rates? We measure perceived monetary policy uncertainty from changes in short-term option prices around FOMC announcements and show that it is related to measures of uncertainty communicated through policy announcements and also to how policy commitment is communicated. Monetary policy uncertainty primarily moderates the impact of forward guidance shocks on long-term government bond yields. Our results suggest this moderation process is delivered through changes in the term premium component rather than the expected component of yields.
| Original language | English |
|---|---|
| Article number | 103321 |
| Pages (from-to) | 1-32 |
| Number of pages | 32 |
| Journal | Journal of International Money and Finance |
| Volume | 154 |
| DOIs | |
| Publication status | Published - Apr 2025 |
Keywords
- Bond yields
- Forward guidance
- Monetary policy surprises
- Monetary policy uncertainty
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