SPEECH
The yield curve and monetary policy
Speech by Philip R. Lane, Member of the Executive Board of the ECB, Public Lecture for the Centre
for Finance and the Department of Economics at University College London
London, 25 November 2019
Introduction
It is a pleasure to speak this evening at University College London (UCL). In my contribution, I wish to
share some thoughts about the yield curve and monetary policy.[1]
UK data offer scholars a unique opportunity to take a very long view: the long-term nominal gilt yields
shown in Chart 1 reach all the way back to 1826, the founding year of UCL. Over the past 200 years, gilt
yields have never been as low as today. That long-term nominal yields have decreased substantially over
recent decades is not specific to the United Kingdom but applies across advanced economies: long-term
German yields and euro area overnight index swap (OIS) rates (which are the closest measure of a euro
area-wide risk-free rate available) are currently ranging near record lows.[2],
[3]
Long-term rates in the euro area have even reached negative territory.[4]
Chart 1
UK, US, DE and euro area OIS long-term interest rates
(percentages per annum)
Sources: Bank of England, Bloomberg, FRED, Jordà et al. (2019), Thomson Reuters.
Notes: For the United Kingdom, the series is the rate on a consol, taken from the Bank of England data series "A
Millennium of UK Data" (Thomas and Dimsdale, 2017). As of 2016, it is the yield of a 20-year zero coupon bond. For
Germany, the series is the rate on a government bond or similar government debt instrument with 5-15 year maturity,
Chart 2
Yield curve slope and recessions in the euro area
(percentage points)
Sources: CEPR, OECD, ECRI, Bundesbank, Thomson Reuters and ECB calculations.
Notes: The slope of the yield curve shown is the spread between ten-year and one-year OIS yields since 1999. Before
1999, the spread is based on German bond data. German data back to 1972 are computed by the Bundesbank using the
method of Svensson. German data prior to 1972 are extrapolated backwards based on historical series of short and
longterm yields provided by the OECD. Long-term OECD yields refer to yields on outstanding listed federal securities with
residual maturities of over nine to ten years traded on the secondary market. Short-term OECD yields are usually either
the three-month interbank offered rates applicable to loans between banks, or the rates associated with Treasury bills,
certificates of deposit or comparable instruments of three-month maturity in each case. Euro area (as of 1999) and
German (before 1999) recessions are identified, respectively, by the CEPR and the Economic Cycle Research Institute
(ECRI), with the exception of the German recession at the beginning of the 1970s identified by the OECD composite
leading indicators.
Latest observation: October 2019.
At the same time, despite the unprecedented low level of the yield curve, the fact that the slope of the euro
area yield curve is fairly flat (but slightly positive) is not at all unusual from a historical perspective (see
Chart 2).[5]
The yield curve is a central element in the transmission of monetary policy. Standard and non-standard
monetary policy instruments affect the whole of the term structure, which in turn is a key determinant of the
financing conditions of the economy. Some rates in the euro area economy - such as corporate bond rates
or mortgage loan rates - are based on longer-term risk-free yields, while others - such as bank loan rates
for firms - are mostly priced off shorter maturities.[6]
The financing conditions prevailing for firms and households in turn affect the level of economic activity
and inflation.
While current monetary policy is an important factor affecting the yield curve, beliefs about future monetary
policy and risk premia also play a role. In turn, these depend on a host of factors which determine the
inflation or growth outlook of market participants and the evolution of risk premia. Accordingly, the yield
curve plays a dual role for monetary policymakers: on the one hand, as a transmitter of monetary policy;
on the other hand, as a source of information about the expectations and risk assessments of investors
about the future macroeconomic environment and the future path for monetary policy.
Response of the yield curve to monetary policy in normal times
Let me first revisit the benchmark case of how the yield curve reacts to the standard policy tool of
variations in short-term interest rates. To this end, I will focus on a rate cut, in order to facilitate the
comparison with a subsequent discussion of our unconventional monetary easing policies.
When measuring the effect of monetary policy on the yield curve, macroeconomists typically focus on
monetary policy shocks: that is, surprise changes in the policy rate that occur independently of other
structural shocks, such as innovations in aggregate demand or cost-push shocks. Since monetary policy
decisions respond to these other shocks, naive calculations of the co-variation between monetary policy
and the yield curve cannot distinguish the contribution of monetary policy from the impact of the underlying
structural shocks. Accordingly, the independent role of monetary policy is revealed by focusing on the
surprise element in monetary policy decisions, and there is a buoyant literature trying to identify these
shocks and measure their impact on the yield curve and the economy.
While earlier studies focused on the effect of contemporaneous rate surprises, more recent papers
account for the fact that monetary policy decisions have typically been accompanied by explicit (or at least
perceived) central bank communication on the future course of policy rates. Accordingly, the literature has
started to distinguish between "rate surprises" and "path surprises" (or surprise changes to the forward
guidance on future rates).[7]
As was true for the earlier literature focusing on standard rate cuts, identification is a challenge:
researchers need to separate rate surprises from path surprises and tell both apart from other structural
shocks occurring at the same time.
Recent research involving ECB economists has used high-frequency movements in financial market
variables to disentangle various types of monetary policy surprises affecting the yield curve during ECB
press conferences: the impact of each type of surprise can be parsimoniously described by its "footprint"
on the term structure (Chart 3).[8]
A standard rate cut primarily affects the short end of the curve, while the impact peters out monotonically
across the curve (Chart 3, left panel). By contrast, an innovation in the forward guidance on interest rates
has a hump-shaped effect on the curve and exerts its maximum effect at a maturity of around two years
(Chart 3, right panel).
Chart 3
Estimated effect of standard policy rate surprise (left-hand side) and rate path surprise
(righthand side) on the euro area OIS curve
(basis points)
Sources: Based on Altavilla et al. (forthcoming).
Notes: The surprise impact is normalised to 10 basis points for the six-month (LHS) and two-year maturity (RHS),
respectively.
An instructive way to rationalise those patterns is by reference to the expectations hypothesis of the term
structure, according to which the long-term rate on a bond equals the average of short-term rates expected
to prevail over the maturity of the bond. Under this assumption, a contemporaneous surprise in the
shortterm rate influences the short end of the curve one for one, while long rates will typically be affected less
than one for one.[9]
By comparison, a forward guidance surprise can be interpreted as leaving the current rate untouched while
affecting the short-term interest rate path in the near and medium term. Taking an average over such an
expected rate path gives rise to the observed hump-shaped footprint.
However, simple versions of the expectations hypothesis find little support in the data. Besides the
average of expected short-term rates (the "expectations component"), long-term bond rates typically
contain term premia, which are time-varying. In a nutshell, term premia are an average of expected excess
returns over the lifetime of the bond, where the excess return measures the return from investing in a
longterm bond over a short time period in excess of the risk-free short-term rate prevailing over that period.[10]
Accordingly, term premia reflect both the riskiness of long-term bonds and the compensation required by
investors for that risk. Abstracting from credit and liquidity risk, the most prevalent source of risk for
longterm debt is duration risk: that is, the sensitivity of the bond price to changes in the yield curve. I will come
back to this when discussing the duration channel of large-scale central bank asset purchases.[11]
Monetary policy exerts its effects on the yield curve not only through pure rate expectations but also
through term premia. Chart 4 shows a model-based estimate of the yield curve response to a change in
policy rates for the euro area.[12]
The surprise used here is a combination of what I previously described as a pure rate surprise and a
forward guidance surprise. It therefore affects yields across all maturities. While Chart 4 shows that
changes in rate expectations explain the bulk of the yield curve response, part of it is attributable to
changes in term premia.
Chart 4
Instantaneous impact of conventional policy surprise on expectations and term premia
(basis points)
Source: ECB calculations.
Notes: The chart depicts the instantaneous impact of a conventional monetary policy surprise on the yield curve and its
components. The policy surprise is identified through high-frequency changes in the common component of a set of euro
area short-term interest rates of maturities up to one year. The surprise (normalised so that the one-month rate is reduced
by 10 basis points) thus captures effects beyond a pure target rate surprise. These effects may be interpreted as a
signalling element of conventional monetary policy. The impact is computed on the basis of a shadow-rate term structure
model following Geiger and Schupp (2018). Estimates are based on a sample ending in June 2014 in order to avoid
interference with the period of negative policy rates and asset purchases.
Some studies have looked at specific channels by which term premia help explain certain yield curve
phenomena that can hardly be reconciled by the expectations hypothesis alone. For instance, Hanson and
Stein (2015) observe that monetary policy rate decreases tend to coincide with surprisingly strong
reactions in long-term forward rates.[13]
One way to explain this pattern is by assuming that there may be "yield-oriented investors" in the market
who do not trade based on forward-looking risk-return optimisation but rather react to changes in current
yields. Those players may try to reallocate their portfolios in response to the policy-induced short rate
decline in order to keep their average portfolio yields constant. Their increased demand for longer-term
bonds will then increase bond prices and decrease term premia. This term premium compression will
come on top of the decline in rate expectations and thus amplify the overall effect of a cut in short-term
rates.
While this is one promising way to rationalise term premium responses to a monetary policy rate change,
overall, our understanding of the interaction between monetary policy and term premia is still very limited.
Take, for instance, the standard workhorse dynamic stochastic general equilibrium (DSGE) models
commonly used by central bankers. Such models tend to abstract from the maturity structure of interest
rates and the impact of term premia, especially in their commonly used linearised versions.
So far, we have seen the typical reaction of the yield curve to rate cuts in normal times: first, a reduction of
the policy rate tends to lower and steepen the yield curve as short-term maturities decrease by more than
their long-term counterparts; second, in addition to actual rate changes, communication about future rates
influences the curve so that intermediate maturities react most strongly; and third, the transmission of
monetary policy action and communication on short rates to long rates not only works through rate
expectations but also through term premia.
Assessing the impact of non-standard monetary policy on the yield
curve
The transmission of negative rates to the yield curve
Turning to non-standard policy, let me start with negative interest rates. Chart 5 shows the characteristic
footprint of a cut in the policy rate - in negative territory - on the yield curve. It is constructed on the basis
of high-frequency financial market information in the same way as Chart 3. There is a clear difference:
compared with standard rate cuts in positive territory, rate cuts in negative territory have had a stronger
effect further out along the yield curve.
Chart 5
Estimated effect of policy rate (deposit facility rate) cut in negative territory on the OIS curve
(basis points)
Sources: Based on Altavilla et al. (forthcoming).
Notes: Surprise impact normalised to 10 basis points for the six-month maturity.
Why do we see a stronger effect on longer maturities when the rate cut takes place in negative territory?
One factor here is that cuts in negative territory were often accompanied by communication or at least
market perceptions that the ECB was willing to lower the negative rate even further, if warranted by
subsequent economic conditions. As a case in point, for the final two of the last five rate cuts, the
introductory statement at the press conference clarified that the ECB's Governing Council "expects the key
ECB interest rates to remain at present or lower levels". This type of communication about the scope of
negative rates can provide accommodation even in the absence of actual rate cuts. This mechanism adds
another dimension to the standard channels of rate forward guidance.
Let me elaborate on this point. Consider the situation in which the central bank is perceived to be
constrained by the zero lower bound. Guided by an understanding of the central bank's reaction function
and a depressed macroeconomic outlook, markets may think that in one year's time, the central bank
would like to set negative rates with positive probability but that, if constrained by the zero lower bound,
the best the central bank can do in those states of the world is to keep rates at zero. In technical terms: the
presence of the lower bound induces a censored distribution for future short rates. This in turn biases
upwards the expectations of future short-term rates and hence steepens the whole term structure.[14]
Communicating about a decrease in the lower bound makes rates possible that were previously perceived
to be infeasible and, ceteris paribus, decreases expected future rates. By this reasoning, the lower bound
itself - that is, the extent to which the central bank is willing to go negative if needed - becomes a policy
parameter.[15]
Another potential way in which rate decreases in negative territory may have a more distinct effect is the
accentuation of yield-seeking investor behaviour as in the Hanson-Stein setting that I described earlier.
Those financial market participants that have a strong aversion to negative rates on short-term assets or
an institutional need to avoid them altogether would seek to climb up the maturity ladder. This increased
demand for longer-term debt would increase prices and decrease term premia. That is, the rate cut in
negative territory would lead to a more accentuated search for yield that could amplify the yield curve
reaction compared with what is observed on average in positive territory.
Through a similar mechanism negative rate policy can also be seen as complementary to our bond
purchase programme (whose impact on the yield curve I will discuss in more detail later on).[16]
In particular, the negative deposit rate reinforces the incentive of banks to actively seek higher-return
alternatives rather than passively absorbing the excess liquidity created by quantitative easing.[17]
Finally, the negative interest rate policy also reinforces our targeted long-term refinancing operations
(TLTROs).[18]
Under the TLTROs, banks can refinance with the ECB at very favourable conditions: under the second and
third wave of that programme (TLTRO II and III), borrowing rates in the TLTROs can be as low as the
deposit facility rate (which is negative) if lending volume targets are met. Accordingly, the presence of
negative rates provides a strong incentive for banks to participate in the TLTROs, which support credit
provision to the real economy at attractive conditions.
The transmission of asset purchases to the yield curve
Let me now turn to large-scale asset purchases, including our own asset purchase programme (APP).
There is a wide array of studies quantifying the effects of various forms of asset purchases on financial
markets and macroeconomic variables. Results vary regarding the quantitative impact but there is a broad
consensus that central bank asset purchases lead to a flattening of the curve, since the yields of
longerterm bonds tend to decline by more than those of short-term bonds.
A first look at the stylised facts using the same approach that I outlined earlier confirms this pattern for the
euro area. Extracting a quantitative easing factor from high-frequency interest rates and other financial
market data confirms that news about ECB asset purchases had yield compression and flattening effects
on the term structure, as shown in Chart 6.
Chart 6
Estimated effect of quantitative easing surprise on the OIS curve
(basis points)
Sources: Based on Altavilla et al. (forthcoming).
Notes: Surprise impact normalised to 10 basis points for the ten-year maturity.
The academic literature distinguishes broadly between two channels through which this policy works:
signalling and portfolio rebalancing.[19]
Under the signalling channel, central bank asset purchases serve as a commitment device to keep policy
rates at low levels for an extended period of time. Under the portfolio rebalancing channel, the central
bank's withdrawal of net bond supply from the market induces investors to reshuffle their portfolios, and
these changes in demand-supply constellations affect bond prices and yields.
Under the signalling channel, the expectations component of bond yields decreases upon news about
asset purchases, whereas under the portfolio rebalancing channel, the term premium component is
compressed. The expectations and the term premium components cannot be observed separately.
Econometric modelling is required to discriminate between the two components and provide a deeper
understanding of the transmission channels of asset purchases.
An important episode studied by ECB researchers is the period before the announcement of the APP in
January 2015. Between summer 2014 and the official announcement, some events reinforced the view of
market participants that ECB government bond purchases were likely to start in the near future. The
events examined by ECB staff occurred between the Governing Council meetings on 3 September 2014
and 22 January 2015, the day when the ECB announced the APP.[20]
Cumulating across these events, the long-term Bund rate declined by 30 basis points. This is the bar that
you see on the left in Chart 7. With the help of an econometric term structure model, ECB staff have
decomposed that change into the contribution of changes in average short rate expectations and the term
premium.[21] Chart 7 shows that it is the term premium that accounts for essentially the entire decline in
yields. On the day of the APP announcement itself (22 January 2015), the ten-year Bund rate decreased
by 15 basis points, which is one of the largest daily declines in Bund yields since the inception of the euro.
The second bar in Chart 7 also shows that the observed yield compression can be explained exclusively
by the term premium.[22]
Chart 7
Decomposed changes in ten-year Bund yields
(percentage points)
Sources: Based on Lemke and Werner (forthcoming).
Notes: Based on an affine term structure model, the bars shows the decomposed change of the ten-year Bund yield over
the indicated horizons: left bar corresponds to cumulated one-day changes associated with APP-related ECB
communication between summer 2014 and 22 January 2015. The other two bars correspond to a one-day change for the
indicated date.
So staff analysis suggests that, at least initially, growing expectations of the imminent start of the APP were
primarily reflected in a compression of the term premium.[23]
One way in which the portfolio rebalancing channel may affect bond yields is through a direct impact on
demand and supply conditions in the maturity segment in which we purchase. For instance, buying a
French eight-year bond decreases the supply of that bond available in the market. For given demand, this
drives up the price of the bond and compresses its yield. Securities of similar maturity are close
substitutes, so their yield would also be affected, but those with very short and much longer maturities
would not be greatly affected. This is why this channel is often referred to as the "local supply channel".
Another way in which the portfolio rebalancing channel is set in motion is through duration extraction.[24]
The formalisation of this idea is based on prominent work by Vayanos and Vila (2009).[25] Let me just give
you the basic mechanism. Going back to my previous example, under the duration extraction channel, the
purchase of a French bond not only affects demand and supply locally but also reduces the aggregate risk
to be borne by market participants. This leads price-sensitive investors to re-adjust their bond portfolio
across maturities given their overall risk-bearing capacity. In terms of asset pricing terminology, central
bank bond purchases decrease the market price of duration risk (the expected excess return on a long-
term bond per unit of risk). As I explained earlier, excess returns constitute the term premium component
of long-term bond yields, so term premia and overall bond yields decline.
An important implication of the duration channel is that it is not purchase flows that matter, but rather the
stock of assets that the central bank is expected to hold on its balance sheet.[26]
For instance, if the central bank announces a longer reinvestment horizon, it means that more duration risk
is expected to be withdrawn from the market over a longer interval. The duration withdrawal leads to
declining expected excess returns in the future. But those future excess returns are part of the current term
premium embedded in a long-term bond. It follows that a longer reinvestment period in the future helps
keep bond yields at low levels now.
Similar to analysis that accompanied the asset purchases of the Federal Reserve, ECB economists have
quantified the effect of our asset purchases on the yield curve.[27]
Based on a term structure model that incorporates the duration extraction channel that I just explained,
Chart 8 shows estimates of how much the APP has compressed the yield curve in the euro area at
different points in time.
Chart 8
APP impact on the euro area sovereign term structure
(basis points)
Sources: ECB, based on Eser et al. (2019).
Notes: The figure shows by how much the term premium component of euro area sovereign yields (weighted average of
Germany, France, Italy and Spain) with maturities of one to ten years is estimated to be compressed due to the APP
through the duration channel at three dates: the announcement of the APP (Jan 2015), the extension of the programme in
June 2018, and the announcement of the restart of net purchases in September 2019.
Chart 9
APP impact on ten-year euro area sovereign yield over time
(basis points)
The first point is January 2015 when the ECB had just announced that it would start purchases in the
following March at a rate of €60 billion per month, intended to run until September of the following year.
According to ECB staff estimates, the anticipation of the purchases, the associated balance sheet
accumulation of the ECB and, as a flip side of the coin, the expected duration extraction were associated
with a term premium compression of almost 50 basis points for the ten-year maturity. For shorter-term
bonds the effects are lower, such that the expectation of asset purchases is estimated to have led to a
flattening of the curve. Moreover, by virtue of the stock effect, the yield compression was expected to be
long-lasting and to halve only after five years.
Owing to changes in macroeconomic conditions and the need to adapt the monetary policy response,
several recalibrations were made to the APP.[28]
Accordingly, as is shown in Chart 9, the contemporaneous term premium impact changed over time,
reaching its maximum of more than 100 basis points in mid-2016, when markets were expecting a
significant expansion of the APP in light of increased uncertainty induced by the Brexit referendum
outcome. When the end of net purchases was announced in June 2018, the impact on ten-year sovereign
bond yields was estimated to be around 90 basis points. The additional duration extraction associated with
the renewed net purchases that started this month has contributed to a further compression of the term
premium. Currently, staff estimate the euro area sovereign ten-year rate to be more than 100 basis points
lower than in a counterfactual where the APP never happened, and the curve to be distinctly flatter (see
again Chart 8).
Finally, there are also complementarities between the APP and other instruments, which I will briefly
summarise.[29]
First, the APP helps maintain the excess liquidity conditions that keep the euro short-term rate (€STR), the
interbank overnight rate in the euro area, near the ECB's deposit facility rate, which in turn contributes to
avoiding undesirable bouts of interest rate volatility. Second, as an immediate consequence of the induced
tight link between the deposit facility rate and the €STR, our forward guidance on the official ECB rate will
effectively be mapped directly onto expectations of the market-relevant €STR. And third, capital gains for
bond-holding banks can free up balance sheet capacity that banks can redeploy to generate commercial
loans under the TLTRO scheme.
Summary of the yield curve effects of the ECB's non-standard policies
Putting several pieces of analysis together, ECB economists have come up with the following summary
assessment of how the various non-standard policy measures since 2014 have affected the yield curve.
Chart 10
Compression of euro area sovereign yield curve due to ECB's non-standard measures
(percentage points)
Sources: Based on Rostagno et al. (2019).
As we see in Chart 10, covering the annual averages from 2014 to 2018, the APP accounted for the bulk
of the estimated yield compression at the long end of the curve. Negative interest rates and forward
guidance, by contrast, account for the lion's share at the short end of the curve. Overall, taking the APP,
negative rates and rate forward guidance together, ten-year sovereign bond yields would have been
almost 1.4 percentage points higher in 2018 without those measures. These yield compressions have
been transmitted further to an easing of financing conditions for non-financial corporations and
households.[30]
Interpreting signals from a flattening curve under central bank asset purchases
The significant effect that our monetary policy had on the yield curve helped to improve financing
conditions and ease the monetary policy stance. At the same time, the strong impact of our own policy
makes it more difficult to read the information that the yield curve may incorporate regarding the outlook for
the economy. An important and currently relevant example is the question as to what extent a flattening
yield curve signals a weakening of the economic outlook.
There has been a considerable body of literature devoted to this question. An important strand focuses on
the negative correlation between the slope of the yield curve and the probability of future recessions, and
the possible economic mechanisms underlying such a pattern. I will just briefly highlight how important it is
to take our own action into account when interpreting the signals reflected in the yield curve.
For the euro area, and for Germany over earlier years, we see indeed the regularity that recessions tend to
have been preceded by a flattening yield curve (see Chart 2 again). A recent paper examines how
economists and commentators, when confronted with a flattening curve in the past, often argued that "this
time is different".[31]
That is, they claimed that special factors were contributing to the flatter curve and that these compromised
the standard interpretation of the curve as a harbinger of recession.
As I mentioned at the beginning, the current euro area yield curve is indeed quite flat from a historical
perspective, with the spread between ten-year and one-year yields amounting to about 30 basis points,
which is around 1 percentage point lower than on average.[32]
I will certainly not make a binary statement on whether this time is different. In particular, a sound
assessment of the future growth outlook should be based on a wide range of indicators and models, rather
than the yield curve alone. Moreover, there are two further issues to consider.
First, the current flattening of the curve has mainly been induced by the long end of the curve coming
down, rather than by the short end coming up. This constellation is different from previous episodes of
yield curve inversion, as is shown in Chart 11. Hence, the inversion of the yield curve observed this time is
not occurring in a context of monetary policy contraction raising the short end of the curve.
Chart 11
Decomposition of change in the slope of the yield curve
(percentage points)
Sources: Bundesbank, OECD, Thomson Reuters and ECB calculations.
Notes: Update of the corresponding chart in De Backer et al. (2019). The changes in the slope of the yield curve are
calculated from peak to trough. See the footnote of Chart 2 for more details regarding the underlying data.
Chart 12
APP impact on the euro area OIS curve
(percent per annum)
Sources: ECB, based on Eser et al. (2019).
Notes: The blue line represents the overnight index swap (OIS) curve as of mid-November 2019. The yellow line
represents an estimate of the corresponding counterfactual curve that would have prevailed in the absence of the APP.
Second, the flattening of the curve is to some extent driven by our own asset purchases conducted for the
purpose of stimulating the economy. As is shown in Chart 12, one observes that the current slope would be
around 70 basis points higher in the absence of the APP and thus much closer to the historical average.[33]
What we learn from this example is that we need to be careful when reading the yield curve especially
during times when our own actions have a significant influence on it. Despite this caveat, we pay careful
attention to the evolution of the yield curve, in order to assess the views of investors concerning future
macroeconomic and policy developments and explore non-monetary factors that can influence term
premia, such as global shifts in portfolio preferences, risk distributions and risk-absorbing capacity.
Conclusion
Let me conclude. The yield curve plays a key role for the transmission of monetary policy, under both
standard and non-standard policy measures. Our non-standard measures of negative interest rate policy
and asset purchases brought down the overall level of the yield curve to a region that is, by definition,
unreachable under a zero lower bound and contributed to a considerable flattening of the term structure.
The lowering and flattening of the yield curve in turn eased financing conditions for non-financial
corporations and households, contributed to spurring economic activity and helped bring inflation closer
towards our aim.
From an analytical perspective, further study of the impact of innovative monetary policy measures is a
necessity for central bankers and an opportunity for academics. While academic researchers have the
privilege of being able to watch new policy measures unfold before scrutinising their impact, central bank
researchers and decision-makers have to monitor the impact of policy in real time, and are forced to rely
on sparse empirical evidence, especially if the policy measure is unprecedented.
There are many open issues