Time-varying response of treasury yields to monetary policy shocks

Lassaâd Mbarek (Department of Monetary Policy, Central Bank of Tunisia, Tunis, Tunisia)
Hardik A. Marfatia (Northeastern Illinois University, Chicago, Illinois, USA)
Sonja Juko (Deutsche Bundesbank, Frankfurt am Main, Germany)

Journal of Financial Regulation and Compliance

ISSN: 1358-1988

Publication date: 26 June 2019



This paper aims to examine the Treasury bond yields response to monetary policy shocks in Tunisia under a heterogeneous economic environment.


Using a traditional fixed coefficient model, the impact of monetary policy changes on the term structure of interest rates for the whole period from January 2006 to December 2016 is estimated first. Then the stability of this relationship by distinguishing two sub-periods around the revolution of January 2011 is studies. To investigate how the relationship between the monetary policy and the Treasury yield curve evolves over time, a time-varying parameter model is estimated.


The results show that the impact of monetary policy is more pronounced at the short end of the yield curve relative to the longer end. Furthermore, this impact declines significantly across all maturities following the revolution and exhibits wide time variation. This evidence supports the negative influence of high levels of uncertainty on monetary policy effectiveness and highlights the desirability of more active monetary policy, especially in turbulent environment.

Research limitations/implications

The impact of uncertainty on the effectiveness of monetary policy shocks needs to be explored further in future research to understand the structural sources of uncertainty and their dynamic interactions with monetary policy and risk aversion in asset markets.

Practical implications

A more active role of the central bank to influence the yield curve mainly through Treasury bond purchases covering medium and long maturities may be warranted. Communication also needs to be reinforced to ensure predictability of the monetary policy stance.


This paper extends the empirical literature on the pass-through of monetary policy to interest rates for an emerging country in context of transition by estimating a state-space model to test the time-varying behavior and examine the influence of increased economic uncertainty on monetary policy effectiveness.



This work was sponsored by the Economic Research Forum (ERF) and has benefited from both financial and intellectual support. The contents and recommendations do not necessarily reflect ERF’s views.


Mbarek, L., Marfatia, H. and Juko, S. (2019), "Time-varying response of treasury yields to monetary policy shocks", Journal of Financial Regulation and Compliance, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JFRC-11-2018-0146

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