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An Evaluation of Event-Study Evidence on the Effectiveness of the FOMC’s LSAP Program: Are the Announcement Effects Identified?

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  • Daniel L. Thornton

Abstract

The consensus in monetary policy circles that the Fed?s large-scale asset purchases, known as quantitative easing (QE), have significantly reduced long-term yields is due in part to event studies, which show that long-term yields decline on QE announcement days. However, little attention has been given to whether these announcement effects are identified. This paper contributes to the literature by investigating whether announcement effects associated with the QE announcements used in the literature are identified. The analysis shows that none of announcement effects satisfy the strict requirements for identification. At best, event-studies provide modest evidence that QE reduces long-term yields.

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  • Daniel L. Thornton, 2013. "An Evaluation of Event-Study Evidence on the Effectiveness of the FOMC’s LSAP Program: Are the Announcement Effects Identified?," Working Papers 2013-033, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:2013-033
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    1. Kuttner, Kenneth N., 2001. "Monetary policy surprises and interest rates: Evidence from the Fed funds futures market," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 523-544, June.
    2. Jonathan H. Wright, 2012. "What does Monetary Policy do to Long‐term Interest Rates at the Zero Lower Bound?," Economic Journal, Royal Economic Society, vol. 122(564), pages 447-466, November.
    3. Neely, Christopher J., 2015. "Unconventional monetary policy had large international effects," Journal of Banking & Finance, Elsevier, vol. 52(C), pages 101-111.
    4. Eric T. Swanson, 2011. "Let's Twist Again: A High-Frequency Event-study Analysis of Operation Twist and Its Implications for QE2," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(1 (Spring), pages 151-207.
    5. Michael D. Bauer & Glenn D. Rudebusch, 2014. "The Signaling Channel for Federal Reserve Bond Purchases," International Journal of Central Banking, International Journal of Central Banking, vol. 10(3), pages 233-289, September.
    6. Daniel L. Thornton, 2011. "The effectiveness of unconventional monetary policy: the term auction facility," Review, Federal Reserve Bank of St. Louis, vol. 93(Nov), pages 439-454.
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    Cited by:

    1. Berndt, Antje & Yeltekin, Şevin, 2015. "Monetary policy, bond returns and debt dynamics," Journal of Monetary Economics, Elsevier, vol. 73(C), pages 119-136.
    2. Daan Steenkamp & Henk Janse van Vuuren & Rossouw van Jaarsveld & Roy Havemann, 2022. "The bond market impact of the South African Reserve Bank bond purchase programme," Working Papers 876, Economic Research Southern Africa.

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