Working Paper: NBER ID: w23311
Authors: Eric T. Swanson
Abstract: I extend the methods of G¨urkaynak, 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, 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 and corporate bond yields. I estimate that the effects of LSAP announcements were very persistent, with the exception of the very large and perhaps special March 2009 “QE1” announcement. The effects of forward guidance are slightly less persistent, but the difference is not statistically significant and is likely due to the FOMC’s forward guidance announcements having a relatively shorter horizon.
Keywords: Federal Reserve; Forward Guidance; Asset Purchases; Financial Markets
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 (F17) | Short-Term Treasury Yields (E43) |
| LSAPs (P37) | Longer-Term Treasury Yields (E43) |
| LSAPs (P37) | Corporate Bond Yields (G12) |
| Forward Guidance (F17) | Asset Prices (G19) |
| LSAPs (P37) | Asset Prices (G19) |
| Forward Guidance (F17) | Longer-Term Yields (E43) |
| LSAPs (P37) | Persistence of Effects (C41) |
| Forward Guidance (F17) | Persistence of Effects (C41) |