Channels of international monetary policy spillovers to euro area neighbours

• Department of Economics
• Robert Schuman Centre for Advanced Studies
• Tommaso Padoa Schioppa Chair

Do monetary policy spillovers from the Federal Reserve (Fed) and the European Central Bank (ECB) propagate differently?

Do monetary policy spillovers from the Federal Reserve (Fed) and the European Central Bank (ECB) propagate differently? This paper examines how policy surprises originating from the Fed and the ECB affect sovereign bond yields in euro-area neighbouring countries. Using a dynamic term-structure model that incorporates the effective lower bound, the analysis decomposes recipient countries’ yields into expectations and term-premium components. Combining these estimates with high-frequency monetary policy surprises allows the identification of distinct spillover channels — aggregate demand, exchange-rate, and risk-taking — whose relative importance varies across maturities, shock types, and country characteristics.

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