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Let’s twist again: a high-frequency event-study analysis of operation twist and its implications for QE2

  • Eric T. Swanson

This paper undertakes a modern event-study analysis of Operation Twist and compares its effects to those that should be expected for the recent quantitative policy announced by the Federal Reserve, dubbed "QE2". We first show that Operation Twist and QE2 are similar in magnitude. We identify six significant, discrete announcements in the course of Operation Twist that potentially could have had a major effect on financial markets, and show that four did have statistically significant effects. The cumulative effect of these six announcements on longer-term Treasury yields is highly statistically significant but moderate, amounting to about 15 basis points. This estimate is consistent both with Modigliani and Sutch’s (1966) time series analysis and with the lower end of empirical estimates of Treasury supply effects in the literature.

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Paper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2011-08.

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Date of creation: 2011
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Handle: RePEc:fip:fedfwp:2011-08
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  1. Refet S. G�rkaynak & Jonathan H. Wright, 2012. "Macroeconomics and the Term Structure," Journal of Economic Literature, American Economic Association, vol. 50(2), pages 331-67, June.
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  7. Joseph Gagnon & Matthew Raskin & Julie Remache & Brian Sack, 2010. "Large-scale asset purchases by the Federal Reserve: did they work?," Staff Reports 441, Federal Reserve Bank of New York.
  8. Charles M. Jones & Owen Lamont & Robin L. Lumsdaine, . "Macroeconomic News and Bond Market Volatility," CRSP working papers 333, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  9. James D. Hamilton & Jing Cynthia Wu, 2012. "The Effectiveness of Alternative Monetary Policy Tools in a Zero Lower Bound Environment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 3-46, 02.
  10. Jon Faust & Eric Swanson & and Jonathan H. Wright, 2002. "Identifying vars based on high frequency futures data," International Finance Discussion Papers 720, Board of Governors of the Federal Reserve System (U.S.).
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