Measuring the Effects of Unconventional Monetary Policy on Asset Prices

Eric T. Swanson

NBER Working Paper No. 21816
Issued in December 2015
NBER Program(s):   AP   EFG   ME

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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Eric T. Swanson

Department of Economics
University of California at Irvine
3151 Social Science Plaza
Irvine, CA 92697-5100

http://www.ericswanson.org/