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Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
US Monetary Policy and International Bond Markets
Simon Gilchrist
Vivian Z. Yue
Egon Zakrajsek
Abstract

This paper uses high-frequency data to analyze the effects of US monetary policy--during the conventional and unconventional policy regimes--on foreign government bonds markets in advanced and emerging market economies. The results indicate that an expansionary US monetary policy steepens the foreign yield curve--denominated in local currency--during a conventional US monetary policy regime and flattens the foreign yield curve during an unconventional policy regime. The passthrough of unconventional US monetary policy to foreign bond yields is, on balance, comparable to that of conventional policy. In addition a conventional US monetary easing leads to a significant narrowing of the credit spreads on dollar-denominated sovereign bonds that are issued by countries with a speculative-grade sovereign credit rating. However, during the unconventional policy regime, yields on speculative-grade sovereign debt denominated in dollars move one-to-one with yields on comparable-maturity US Treasury securities.


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Simon Gilchrist & Vivian Z. Yue & Egon Zakrajsek, US Monetary Policy and International Bond Markets, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2018-014, 15 Feb 2018.
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Keywords: Conventional and unconventional US monetary policy ; Financial spillovers ; Sovereign yields and credit spreads
DOI: 10.17016/FEDS.2018.014
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