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 (working through effective policy rates), signalling (working through expected policy rates), policy uncertainty and QE-specific bond 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, the main QE channels are transmitted to financial markets and the real economy in different ways, and only signalling is found to have ultimately affected inflation significantly.