Measuring the effects of federal reserve forward guidance and asset purchases on financial markets
By Eric T. Swanson. Journal of Monetary Economics, 2020
120 citations recorded by the source corpus.
I extend the methods of Gurkaynak, Sack, and Swanson (2005) to separately identify the effects of Federal Reserve forward guidance and large-scale asset purchases (LSAPs) during the 2009–15 U.S. zero lower bound (ZLB) period. I find that both forward guidance and LSAPs had substantial and highly statistically significant effects on medium-term Treasury yields, stock prices, and exchange rates, comparable in magnitude to the effects of the federal funds rate before the ZLB. Forward guidance was more effective than LSAPs at moving short-term Treasury yields, while LSAPs were more effective than forward guidance and the federal funds rate at moving longer-term Treasury yields, corporate bond yields, and interest rate uncertainty. However, the effects of forward guidance were not very persistent, with a half-life of 1–4 months. The effects of LSAPs seem to be more persistent. I conclude that, overall in terms of these criteria, LSAPs were a more effective policy tool than forward guidance during the ZLB period.
Subfields: Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/454c4ad5d8fd0bf750fdf69e829e35a13e48f033
Citations in the corpus
- Negative Nominal Interest Rates and the Bank Lending Channel (2019, unknown): “Plausible estimates range from considerable effects to none (see e.g. Greenlaw, Hamilton, Harris, and West (2018) for a somewhat skeptical review, Swanson (2017) for a more upbeat assessment, and Greenwood, Hanson, Rudolph, and Summers (2014) for a discussion of debt management at the zero lower…”
- Measuring euro area monetary policy (2019, unknown): “Extraction of this last factor is an application of the Swanson (2017) methodology to euro area monetary policy data.”
- The Voice of Monetary Policy (2021, unknown): “In a similar spirit, the variation in tone appears to be only weakly correlated with actual policy shocks (Panels A-C in Figure 3) as identified in Swanson (2021): a shock to the policy rate (FFR shock), a forward guidance (FG) shock, or an asset purchase (AP) shock.”