Monetary policy transmission during QE times: role of expectations and term premia channels

Staff working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 13 May 2022

Staff Working Paper No. 978

By Iryna Kaminska and Haroon Mumtaz

This paper studies monetary policy transmission mechanisms during QE. Using high frequency yield curve event studies of monetary policy announcements in combination with a dynamic term structure model, we can identify four types of monetary policy surprises: action, signalling (working through expected policy rates), policy uncertainty and QE‑specific gilt supply (both working through term premia). Applying the method to the case of the UK, we find that these channels have often operated together. Importantly, their transmission mechanisms into financial markets and macroeconomy differ, as do their relative strengths. These findings emphasize that for a proper evaluation of QE macroeconomic effects, it is key to identify yield curve channels operating during a particular QE programme.

Monetary policy transmission during QE times: role of expectations and term premia channels

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