Monetary Policy Surprises and their Transmission Through Term Premia and Expected Interest Rates

Monetary policy moves the yield curve. How much is due to expected interest rates versus term premia? And what are the macroeconomic consequences? Applying an affine term structure model to high-frequency yield curve movements around FOMC announcements, we shed new light on these questions. Estimation is subject to restrictions addressing estimation bias present in previous studies. The model is used to extract three instruments for policy shocks: action, expected path and its uncertainty. The instruments are then used in a local projections macroeconomic model, where the identified shocks provide insights into monetary policy transmission through the lenses of existing theories