Measuring the effects of federal reserve forward guidance and asset purchases on financial markets

The methods of G?rkaynak et al. (2005a) are extended to separately identify surprise changes in the federal funds rate, forward guidance, and large-scale asset purchases (LSAPs) for each FOMC announcement from July 1991 to June 2019. Forward guidance and LSAPs had substantial and highly statistically significant effects on Treasury yields, corporate bond yields, stock prices, and exchange rates, comparable in magnitude to the effects of the federal funds rate in normal times. These effects were all very persistent, with the exception of the very large and perhaps special March 2009 ?QE1? announcement for LSAPs. ? 2020 Elsevier B.V. All rights reserved.

Automated summary

The study extended G?rkaynak et al.'s methods to separately identify unexpected changes in the federal funds rate, forward guidance, and large-scale asset purchases for each FOMC announcement from July 1991 to June 2019. The effects of forward guidance and LSAPs on various financial indicators were substantial, highly statistically significant, and comparable in magnitude to the effects of the federal funds rate in normal times, with the exception of the very large and perhaps special March 2009 LSAPs announcement.