Working Paper: NBER ID: w31603
Authors: Eric T. Swanson
Abstract: I separately identify and estimate the effects of the Federal Reserve’s federal funds rate, forward guidance, and large-scale asset purchase (LSAP) policies on the U.S. economy. I extend the high-frequency identification strategy of Bauer and Swanson (2023b) for monetary policy VARs by allowing each of the above policies to have possibly different economic effects. I follow Swanson (2021) and Swanson and Jayawickrema (2023) to separately identify federal funds rate, forward guidance, and LSAP components of monetary policy announcements using high-frequency interest rate changes around FOMC announcements, post- FOMC press conferences, FOMC meeting minutes releases, and speeches and testimony by the Fed Chair and Vice Chair. I find that changes in the federal funds rate have had the most powerful effects on the U.S. economy, followed by forward guidance and, lastly, LSAPs.
Keywords: No keywords provided
JEL Codes: E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| changes in the federal funds rate (E52) | US economy (O51) |
| forward guidance (E60) | US economy (O51) |
| LSAPs (P37) | US economy (O51) |
| changes in the federal funds rate (E52) | inflation (E31) |
| changes in the federal funds rate (E52) | output (C67) |
| forward guidance (E60) | financial market variables (G19) |
| LSAPs (P37) | financial market variables (G19) |
| changes in the federal funds rate (E52) | commodity prices (Q02) |
| changes in the federal funds rate (E52) | stock markets (G10) |