Working Paper: NBER ID: w21816
Authors: Eric T. Swanson
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.
Keywords: Unconventional monetary policy; Forward guidance; Large-scale asset purchases; Asset prices; Zero lower bound
JEL Codes: E44; E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| forward guidance (E60) | medium-term treasury yields (E43) |
| forward guidance (E60) | stock prices (G12) |
| forward guidance (E60) | exchange rates (F31) |
| LSAPs (P37) | longest-maturity treasury yields (E43) |
| LSAPs (P37) | corporate bond yields (G12) |
| LSAPs (P37) | corporate bond spreads (G12) |