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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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  • Thornton, Daniel L.

    (Federal Reserve Bank of St. Louis)

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.

Suggested Citation

  • Thornton, Daniel L., 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, revised 11 Mar 2014.
  • Handle: RePEc:fip:fedlwp:2013-033
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    References listed on IDEAS

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    1. 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.
    2. Christopher J. Neely, 2010. "The large scale asset purchases had large international effects," Working Papers 2010-018, Federal Reserve Bank of St. Louis.
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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.

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