Measuring the Effects of Unconventional Monetary Policy on Asset Prices

Eric T. Swanson

44 citations0/0 files storedNational Bureau of Economic Research

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Monetary Policy and Economic Impact Financial Markets and Investment Strategies Economic theories and models

Abstract

I adapt the methods of Gurkaynak, Sack, and Swanson (2005) to estimate two dimensions of monetary policy during the 2009-2015 zero lower bound period in the U.S. I show that, after a suitable rotation, these two dimensions can be interpreted as "forward guidance" and "large-scale asset purchases" (LSAPs).I estimate the sizes of the forward guidance and LSAP components of each FOMC announcement between January 2009 and June 2015, and show that those estimates correspond closely to identifiable features of major FOMC announcements over that period.Forward guidance has relatively small effects on the longest-maturity Treasury yields and essentially no effect on corporate bond yields, while LSAPs have large effects on those yields but essentially no effect on short-term Treasuries.Both types of policies have significant effects on medium-term Treasury yields, stock prices, and exchange rates.

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References

2001Monetary policy surprises and interest rates: Evidence from the Fed funds futures market 2012The Aggregate Demand for Treasury Debt 2004Do Actions Speak Louder Than Words? The Response of Asset Prices to Monetary Policy Actions and Statements 2014Measuring the Effect of the Zero Lower Bound on Medium- and Longer-Term Interest Rates 2012What does Monetary Policy do to Long‐term Interest Rates at the Zero Lower Bound?2012Methods of Policy Accommodation at the Interest-Rate Lower Bound 2007Market-Based Measures of Monetary Policy Expectations 2006The U.S. Treasury Yield Curve: 1961 to the Present

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