The State Bank of Vietnam published a research note summarising a Federal Reserve Bank of Boston study by Christopher Cotton on cross-border monetary policy spillovers. The note highlights evidence that, while the US Federal Reserve remains the dominant source of international spillovers, interest rate decisions by several other central banks can also move medium and long-term yields in other advanced economies, including the United States and the euro area. Using an event-study approach around policy announcements and a one-week window, the study analyses nearly 4,000 policy press releases and around 1,000 meeting minutes from 20 central banks over 1996–2022. It finds significant long-term yield spillovers from 14 central banks to other advanced economies, including those in Australia, Canada, the Czech Republic, the euro area, Japan, Mexico, Norway, New Zealand, Poland, Romania, South Korea, Sweden, Switzerland and the United Kingdom. For example, a 1 basis point (bp) rise in euro area 10-year government bond yields associated with European Central Bank decisions is linked to a 0.6 bp increase in average 10-year yields across other advanced economies, compared with 0.5 bp for the Fed, while comparable effects are estimated at 0.23 bp for Switzerland and about 0.19 bp for Canada and the UK. Across maturities, US spillovers account for close to 60% of the total estimated impact on advanced economy bond yields, and short-term rates react materially only to the Fed; for developing-country yields, the Fed is the only central bank in the sample with a statistically meaningful effect, with a 1 bp move in US 2-year and 10-year yields associated with average increases of 0.45 bp and 0.41 bp respectively. The note also reports evidence that non-Fed decisions can directly affect US and euro area long-term yields and corporate borrowing costs, with the strongest global spillovers linked to Australia, Canada, Switzerland, the Czech Republic, the euro area, the UK, Sweden and the US. The study attributes cross-border effects to different channels, including changes in expectations about policy-rate paths for the Fed and movements in the long end of the yield curve for other central banks, and finds spillover strength is related to the issuing economy’s size and to economic and cultural proximity between countries.
State Bank of Vietnam 2025-04-22
State Bank of Vietnam summarises research finding 14 central banks beyond the Fed create significant spillovers in advanced economy bond yields
The State Bank of Vietnam summarized a Federal Reserve Bank of Boston study on cross-border monetary policy spillovers. The study finds the US Federal Reserve is the dominant source, but interest rate decisions by other central banks, including those in the euro area, Australia, and Canada, also significantly impact medium and long-term yields in advanced economies. US spillovers account for nearly 60% of the impact on advanced economy bond yields, with non-Fed decisions also affecting US and euro area yields and corporate borrowing costs.