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Reactions of real yields and inflation expectations to forward guidance in the United States

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  • Richhild Moessner

Abstract

We study the impact of forward policy rate guidance by the Federal Reserve's Federal Open Market Committee (FOMC) used as an unconventional monetary policy tool at the zero lower bound of the policy rate on real and breakeven US Treasury yield curves. We find that explicit FOMC policy rate guidance announcements led to a significant reduction in real yields at horizons of 2 to 5 years ahead. By contrast, long-term breakeven inflation rates were little affected, suggesting that inflation expectations have remained well anchored, and that explicit FOMC policy rate guidance has not adversely affected central bank credibility.

Suggested Citation

  • Richhild Moessner, 2015. "Reactions of real yields and inflation expectations to forward guidance in the United States," Applied Economics, Taylor & Francis Journals, vol. 47(26), pages 2671-2682, June.
  • Handle: RePEc:taf:applec:v:47:y:2015:i:26:p:2671-2682
    DOI: 10.1080/00036846.2015.1008759
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    File URL: http://hdl.handle.net/10.1080/00036846.2015.1008759
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    Citations

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    Cited by:

    1. Paul Hubert & Fabien Labondance, 2016. "The Effect of ECB Forward Guidance on Policy Expectations," Working Papers hal-01394821, HAL.
    2. Alan Blinder & Michael Ehrmann & Jakob de Haan & David-Jan Jansen, 2017. "Necessity as the mother of invention: monetary policy after the crisis," Economic Policy, CEPR;CES;MSH, vol. 32(92), pages 707-755.
    3. Richhild Moessner, 2015. "International spillovers from US forward guidance to equity markets," Applied Economics, Taylor & Francis Journals, vol. 47(42), pages 4549-4560, September.
    4. Belke, Ansgar, 2017. "Central bank communication: Managing expectations through the monetary dialogue," Ruhr Economic Papers 692, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    5. Ralf Fendel & Frederik Neugebauer, 2018. "Country-Specific Euro Area Government Bond Yield Reactions to ECB’s Non-Standard Monetary Policy Announcements," WHU Working Paper Series - Economics Group 18-02, WHU - Otto Beisheim School of Management.
    6. repec:bla:jecsur:v:31:y:2017:i:3:p:678-711 is not listed on IDEAS
    7. Michelle Bongard & Gabriele Galati & Richhild Moessner & William Nelson, 2016. "Connecting the dots: market reactions to forecasts of policy rates and forward guidance provided by the Fed," DNB Working Papers 523, Netherlands Central Bank, Research Department.
    8. repec:ebl:ecbull:eb-17-00719 is not listed on IDEAS
    9. 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.
    10. Petra Gerlach-Kristen & Richhild Mössner, 2014. "Inflation Expectations, Central Bank Credibility and the Global Financial Crisis," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 150(II), pages 55-87, June.
    11. Richhild Moessner & David-Jan Jansen & Jakob de Haan, 2017. "Communication About Future Policy Rates In Theory And Practice: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 31(3), pages 678-711, July.
    12. 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.

    More about this item

    JEL classification:

    • 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
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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