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The asymmetric effects of quantitative tightening and easing on financial markets

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  • Lloyd, Simon
  • Ostry, Daniel

Abstract

We study the asymmetric impact of US quantitative tightening (QT) and easing (QE) on financial markets using high-frequency large-scale asset purchase surprises around FOMC announcements. We document that QT surprises since 2017 had larger and more persistent effects on US Treasury yields than QE surprises. Using numerous empirical decompositions of bond yields, we show that this asymmetry arises from the differential effect of QT vs. QE surprises on expectations of future short-term rates (linked to the so-called signalling channel) at shorter maturities.

Suggested Citation

  • Lloyd, Simon & Ostry, Daniel, 2024. "The asymmetric effects of quantitative tightening and easing on financial markets," Economics Letters, Elsevier, vol. 238(C).
    • Handle: RePEc:eee:ecolet:v:238:y:2024:i:c:s0165176524002052
    DOI: 10.1016/j.econlet.2024.111722
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    Cited by:

    1. Rompolis, Leonidas S., 2025. "Quantitative easing, uncertainty, and risk aversion," Journal of Banking & Finance, Elsevier, vol. 177(C).
    2. Mistak, Jakub & Ozkan, F. Gulcin, 2024. "Asymmetric monetary policy spillovers: the role of supply chains, credit networks and fear of floating," Working Paper Series 2995, European Central Bank.
    3. Wifo, 2025. "WIFO-Monatsberichte, Heft 5/2025," WIFO Monatsberichte (monthly reports), WIFO, vol. 98(5), May.
    4. Thomas Url, 2025. "Schwächere Inflationsdynamik ermöglicht Senkung der Leitzinssätze," WIFO Monatsberichte (monthly reports), WIFO, vol. 98(4), pages 217-228, May.

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    More about this item

    Keywords

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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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