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Empirical Economics

Erschienen in:

09.03.2022

Unconventional monetary policies and expectations on economic variables

verfasst von: Alessio Anzuini, Luca Rossi

Erschienen in: Empirical Economics | Ausgabe 6/2022

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Abstract

We investigate whether forward guidance and large scale asset purchases are effective in steering economic expectations in the USA. Using the series of monetary policy shocks recovered in Swanson (J Monet Econ 118:32–53, 2021), local projections, and an algorithm to select the best empirical model, we show that unconventional monetary policies are effective in tilting economic expectations in a direction consistent with central bankers’ will. Our empirical findings provide two more insights: responses to LSAP shocks are stronger than those following a FG shock; responses to contractionary LSAP shocks are larger as compared to those stemming from expansionary ones.

Vorheriger Artikel The effect of Eurosystem asset purchase programmes on euro area sovereign bond yields during the COVID-19 pandemic

Nächster Artikel Monetary policy and the racial wage gap

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With FG we mean the communication by the Federal Open Market Committee (FOMC) about the likely future path of the federal funds rate over the next several quarters, whereas with LSAP the purchases by the Federal Reserve of longer-term U.S. Treasury bonds and mortgage-backed securities. The goal of both policies was to stimulate the economy by lowering longer-term U.S. interest rates.

Greenlaw et al. (2018), where they argue that the impact of UMP are at best short lived, is a notable exception.

This point has also been raised in Nakamura and Steinsson (2018). In their case though they implicitly assume FIRE.

We use state of the art identification procedure of FG and LSAP shocks because our primary aim is to study their impact on expectations. Of course we are not immune from any criticism on that identification procedure.

This approach has first been proposed in Brooks et al. (2004).

FFR, FG and LSAP shocks are always included in the model, but their lag is selected just as the other (common to all variables) ones.

In the working paper version of this paper, we used a shorter sample and were able to use the excess bond premium from Gilchrist and Zakrajšek (2012) instead of the corporate spread above. While in no way we are claiming the two series represent the same phenomenon, they are highly correlated.

The average is taken over the H+1 horizons.

Related figures are available to the reader upon request.

As the Riksbank tirelessly repeats “the interest rate path is a forecast, not a promise”. Woodford (2013) comments on the Riksbank’s approach to monetary policy and state “there is no suggestion that the exercise is anything but a purely forward-looking consideration, repeated afresh in each decision cycle, of which of the feasible forward paths for the economy from that date onward is most desirable, [...]. Indeed, it stresses that the appropriate repo-rate path will be reassessed in each decision cycle”.

In September 2018 median FOMC members’ projections about end-of-2019 target rate was 3.0%; at the end of November 2019 the target range was already 1.5–1.75%.

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Titel: Unconventional monetary policies and expectations on economic variables
verfasst von: Alessio Anzuini
Luca Rossi
Publikationsdatum: 09.03.2022
Verlag: Springer Berlin Heidelberg
Erschienen in: Empirical Economics / Ausgabe 6/2022
Print ISSN: 0377-7332
Elektronische ISSN: 1435-8921
DOI: https://doi.org/10.1007/s00181-022-02224-6

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