Understanding the Aspects of Federal Reserve Forward Guidance

Lunsford, Kurt G.

doi:10.26509/frbc-wp-201815

Cited by 10 publications

(7 citation statements)

References 57 publications

(84 reference statements)

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“…Whereas in the post-2014 sub-sample (bottom panel) information shocks (defined as nominal interest rates, stock prices, and inflation-linked swaps moving in the same direction) are rare, these are frequent during the crisis sub-sample (top panel). That is, in the crisis period market participants attributed more of the surprises they perceived to information they thought the ECB has, consistent with a similar finding for the US by Lunsford (2018) .…”

Section: Stock Prices and The Information Surprisesupporting

confidence: 78%

Measuring Euro Area Monetary Policy

Altavilla

Brugnolini²,

Gürkaynak

et al. 2019

SSRN Journal

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We map ECB policy communication into yield curve changes and study the information flow on policy dates. A byproduct is the publicly available Euro Area Monetary Policy Event-Study Database (EA-MPD), containing intraday asset price changes. We find that Policy Target, Forward Guidance and Quantitative Easing factors capture about all the variation in the yield curve, with different factors appearing in the windows covering the policy decision announcement and the press conference, and having time-varying variance shares. We study sovereign yields, exchange rates, stock prices, persistence of effects and response asymmetry. Our methodology can be implemented for any policy-related event.

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Section: Stock Prices and The Information Surprisesupporting

confidence: 78%

Measuring Euro Area Monetary Policy

Altavilla

Brugnolini²,

Gürkaynak

et al. 2019

SSRN Journal

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“…As in Jarocinski and Karadi (2018), we perform the decomposition using 30-minute surprises in the S&P 500 stock market index (s eq t ) and the 3-month ahead federal funds futures 8 See Barakchian and Crowe (2013), Ramey (2016), Miranda-Agrippino and Ricco (2017), Jarocinski and Karadi (2018), Lunsford (2018). Note, however, that the presence and strength of such a signalling component is an empirical question and depends, among other things, on the sample period and the futures contracts used.…”

Section: Basis Pointsmentioning

confidence: 99%

Crossing the Credit Channel: Credit Spreads and Firm Heterogeneity

Anderson

Cesa-Bianchi

2020

SSRN Journal

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We show that credit spreads rise after a monetary policy tightening, yet spread reactions are heterogeneous across firms. Exploiting information from a unique panel of corporate bonds matched with balance sheet data for US non-financial firms, we document that firms with high leverage experience a more pronounced increase in credit spreads than firms with low leverage. A large fraction of this increase is due to a component of credit spreads that is in excess of firms' expected default-the excess bond premium. Consistent with the spreads response, we also document that high-leverage firms experience a sharper contraction in debt and investment than low-leverage firms. Our results provide evidence that balance sheet effects are crucial for understanding the transmission mechanism of monetary policy.

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“…In addition to the work of Campbell et al () and Campbell, Fisher, Justiniano, and Melosi (), there is a growing literature that emphasizes the role of information frictions in the monetary transmission mechanism. Miranda‐Agrippino and Ricco () and Jarocinski and Karadi () use a SVAR framework while Nakamura and Steinsson (), Cieslak and Schrimpf (), Lunsford () and Andrade and Ferroni () use a high frequency analysis to shed light on the importance of this information channel. Finally, Melosi () and Tang () provide some structural evidence.…”

Section: Introductionmentioning

confidence: 99%

Decomposing the effects of monetary policy using an external instruments SVAR

Lakdawala

2019

J of Applied Econometrics

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We study the effects of monetary policy on economic activity separately identifying the effects of a conventional change in the fed funds rate from the policy of forward guidance. We use a structural VAR identified using external instruments from futures market data. The response of output to a fed funds rate shock is found to be consistent with typical monetary VAR analyses. However, the effect of a forward guidance shock that increases long-term interest rates has an expansionary effect on output. This counterintuitive response is shown to be tied to the asymmetric information between the Federal Reserve and the public. KEYWORDS forward guidance, identification with external instruments, monetary policy MSC CLASSIFICATION E31; E32; E43; E52; E58

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Understanding the Aspects of Federal Reserve Forward Guidance

Cited by 10 publications

References 57 publications

Measuring Euro Area Monetary Policy

Measuring Euro Area Monetary Policy

Crossing the Credit Channel: Credit Spreads and Firm Heterogeneity

Decomposing the effects of monetary policy using an external instruments SVAR

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