Working Paper

Unconventional Monetary Policy Spillovers and the (In)convenience of Treasuries

Abstract: Using high frequency data, we find that spillovers to the U.S. yield curve from the European Central Bank increased following the Global Financial Crisis, and strengthened when the U.S. normalized policy out of sync with other advanced economies. These spillovers were amplified by a contemporaneous waning in the ”convenience” of Treasuries. This provides evidence for a portfolio balance channel of transmission that is time-varying based on the non-pecuniary characteristics of Treasuries. We rationalize these facts using a two-country model of preferred habitat investors, where time-varying price-elasticity of demand for Treasuries gives rise to time-varying spillovers.

JEL Classification: E44; E52; F42; G12;

https://doi.org/10.18651/RWP2025-10

Bibliographic Information

Provider: Federal Reserve Bank of Kansas City

Part of Series: Research Working Paper

Publication Date: 2025-09-04

Number: RWP 25-10