The U.S. Monetary Policy Surprises: Taking Stock of the U.S. Treasury Yield Curve

Presentations:

Monetary Policy Paper Session - AEA 2026 

Society of Financial Econometric Summer Workshop 2024,   

Northwestern University (Kellogg)

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I decompose daily changes in the U.S. Treasury yield curve around 257 FOMC announcements between February 1995 and January 2024 into anticipated and surprise components across the level, slope, and curvature factors that characterize yield-curve dynamics. I identify the surprise component of these changes as U.S. monetary policy surprises and document three main findings. First, monetary policy surprises exhibit distinct transmission patterns across maturities, with their economic relevance varying systematically across subsamples of announcements associated with conventional monetary policy, forward guidance, and unconventional policy regimes. Second, medium-maturity yield movements - captured by surprises to the curvature factor - play a more prominent role during the 2008–2015 Zero Lower Bound (ZLB) period, consistent with the increasing importance of forward guidance in shaping yield-curve dynamics. Third, following the introduction of forward guidance in October 2007, periods in which the policy rate remained unchanged during tightening episodes were associated with yield-curve shifts comparable in magnitude to those observed following conventional rate cuts. These findings highlight how different segments of the yield curve transmit monetary policy surprises across policy regimes and shed light on the evolving role of forward guidance in shaping financial market expectations.

Global Bank Leverage and the International Transmission of U.S. Monetary Policy

Presentation: 

The previous version was presented at the American Economic Association Meetings 2022 Poster Sessions under the title: 

U.S. MONETARY POLICY SURPRISE AND FINANCIAL INSTITUTIONS’ BEHAVIOR: DATA LESSONS FROM BANKS AND INSURANCE COMPANIES IN 72 COUNTRIES

I am grateful to both the Australian Prudential Regulation Authority and the Reserve Bank of Australia for funding this study as part of my dissertation under the Brian Gray Scholarship. I would like to acknowledge the New York University Global Volatility Lab for their immense generosity and support in providing both the daily leverage ratio data and the guidance on using the data set.

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This paper studies how U.S. monetary policy shocks transmit to global bank balance sheets through endogenous adjustments in leverage. Using high-frequency monetary policy surprises around Federal Open Market Committee announcements from 2000 to 2019 and a sample of banks in over 60 countries, I document systematic cross-country differences in leverage responses. To characterize transmission channels, I combine balance sheet responses with asset price movements around policy announcements. I construct a global exchange rate factor based on the first principal component of bilateral exchange rate movements to proxy for shifts in U.S. dollar funding conditions, and use Treasury yield curve surprises to capture changes in the expected path of interest rates. I document three main findings. First, banks reduce equity following monetary policy surprises outside the Zero Lower Bound period. Second, forward guidance shocks have a pronounced effect on non-U.S. banks but limited impact on U.S. banks. Third, leverage responses vary systematically with net foreign exposure and U.S. dollar funding conditions. These findings reveal a key asymmetry in the international transmission of U.S. monetary policy: identical policy shocks generate heterogeneous balance sheet adjustments depending on banks’ funding structures and foreign exposures. The empirical results are consistent with a framework in which global banks optimally choose leverage subject to currency-specific funding constraints, and provide discipline for a dynamic structural model of international bank balance sheet adjustment. This highlights how U.S. monetary policy - particularly forward guidance - operates through differential balance sheet constraints across global banks, shaping global financial conditions with important implications for cross-border spillovers and financial stability.

A New Narrative on Bank Leverage: Suggestive Evidence from France, Indonesia and Japan

Presentation: 

The upcoming version will be presented at the American Economic Association Meetings 2025 Poster Session

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Through a descriptive analysis of bank balance sheets and income statements of banks in France, Indonesia, and Japan, I document three observations: (1) banks are increasing their equity cushion via the accumulation of retained earnings, (2) they prefer low leverage even at the expense of maintaining the same level of Return on Equity (ROE) and they continue lowering their leverage throughout 2013-2019, (3) the different level of their leverage is likely due to different constraints in each country, and yet all banks in the three countries saw their leverage went down throughout 2013-2019 as the result of increasing equity cushion aggressively via retained earnings. This suggests a new, albeit unjustified narrative of "equity begets equity" post-Basel III, providing further avenues for theoretical studies on bank behavior. The observation that banks prefer to raise equity over maintaining their ROE suggests a possible shift in the banks' objective from achieving the highest ROE to levering down as banks view low leverage as a positive signal to investors amid stagnancy in their net income.