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Reactions of US government bond yields to explicit FOMC forward guidance

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  • Moessner, Richhild

Abstract

We quantify the effect of explicit policy rate guidance by the FOMC at the zero lower bound of the policy rate on US government bond yields with maturities up to 10 years. We distinguish between different kinds of announcements, namely open-ended and time-contingent forward guidance announcements, and forward guidance announcements containing state-contingency. We find that open-ended and time-contingent forward guidance announcements led to a significant reduction in forward US Treasury yields at a wide range of horizons, with the largest reduction occurring at the 5-year ahead horizon for both kinds of announcements. By contrast, forward guidance announcements containing state-contingency led to a significant increase in forward US Treasury yields for horizons of 3–7 years ahead; this increase could however be due to associated asset purchase announcements.

Suggested Citation

  • Moessner, Richhild, 2015. "Reactions of US government bond yields to explicit FOMC forward guidance," The North American Journal of Economics and Finance, Elsevier, vol. 33(C), pages 217-233.
    • Handle: RePEc:eee:ecofin:v:33:y:2015:i:c:p:217-233
    DOI: 10.1016/j.najef.2015.04.007
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    4. van Holle, Frederiek, 2017. "Essays in empirical finance and monetary policy," Other publications TiSEM 30d11a4b-7bc9-4c81-ad24-5, Tilburg University, School of Economics and Management.

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