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Central bank announcements of asset purchases and the impact on global financial and commodity markets

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  • Glick, Reuven
  • Leduc, Sylvain

Abstract

We present evidence on the effects of large-scale asset purchases by the Federal Reserve and the Bank of England since 2008. We show that announcements about these purchases led to lower long-term interest rates and depreciations of the U.S. dollar and the British pound on announcement days, while commodity prices generally declined despite this more stimulative financial environment. We suggest that LSAP announcements likely involved signaling effects about future growth that led investors to downgrade their U.S. growth forecasts lowering long-term US yields, depreciating the value of the U.S. dollar, and triggering a decline in commodity prices. Moreover, our analysis illustrates the importance of controlling for market expectations when assessing these effects. We find that positive U.S. monetary surprises led to declines in commodity prices, even as long-term interest rates fell and the U.S. dollar depreciated. In contrast, on days of negative U.S. monetary surprises, i.e. when markets evidently believed that monetary policy was less stimulatory than expected, long-term yields, the value of the dollar, and commodity prices all tended to increase.

Suggested Citation

  • Glick, Reuven & Leduc, Sylvain, 2012. "Central bank announcements of asset purchases and the impact on global financial and commodity markets," Journal of International Money and Finance, Elsevier, vol. 31(8), pages 2078-2101.
  • Handle: RePEc:eee:jimfin:v:31:y:2012:i:8:p:2078-2101
    DOI: 10.1016/j.jimonfin.2012.05.009
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    References listed on IDEAS

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    More about this item

    Keywords

    Large scale asset purchase; Unconventional monetary policy; Announcement; Commodity prices; Event study;
    All these keywords.

    JEL classification:

    • 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
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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