TY - JOUR

T1 - Treasuries variance decomposition and the impact of monetary policy

AU - Kontonikas, Alexandros

AU - Nolan, Charles

AU - Zekaite, Zivile

AU - Lamla, Michael

PY - 2019/10/1

Y1 - 2019/10/1

N2 - This paper investigates the effect of monetary policy shifts on Treasuries over the last three decades. We decompose unexpected excess returns on 2-, 5-, and 10-year Treasuries in three components related to revisions in expectations (news) about future excess returns, inflation, and real interest rates. We evaluate the impact of conventional and unconventional monetary policy shocks on returns and their components. Our results indicate that expansionary monetary policy shocks are associated with declining inflation expectations and higher Treasuries' returns.

AB - This paper investigates the effect of monetary policy shifts on Treasuries over the last three decades. We decompose unexpected excess returns on 2-, 5-, and 10-year Treasuries in three components related to revisions in expectations (news) about future excess returns, inflation, and real interest rates. We evaluate the impact of conventional and unconventional monetary policy shocks on returns and their components. Our results indicate that expansionary monetary policy shocks are associated with declining inflation expectations and higher Treasuries' returns.

KW - Economics

KW - bond market variance decomposition

KW - financial crisis

KW - monetary policy

UR - http://www.scopus.com/inward/record.url?scp=85070289292&partnerID=8YFLogxK

U2 - 10.1002/ijfe.1744

DO - 10.1002/ijfe.1744

M3 - Journal articles

AN - SCOPUS:85070289292

VL - 24

SP - 1506

EP - 1519

JO - International Journal of Finance and Economics

JF - International Journal of Finance and Economics

SN - 1076-9307

IS - 4

ER -