Forward Guidance and Asset Prices

Yıldız Akkaya (), Refet Gürkaynak, Burçin Kısacıkoğlu and Jonathan Wright

No 15-E-06, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: This paper examines the effects of forward guidance at the zero lower bound on the term structure of interest rates in a shadow-rate macro-finance term structure model. The effects on the yield curve are found to depend on the type of forward guidance and on the current level of the shadow rate. The more negative the shadow rate, and so the further away liftoff is, the less effective is forward guidance. Forward guidance affects both the expected path of future short rates, but also term premia. Our model allows us to estimate these effects separately. We also conduct an event-study in which we break out FOMC announcements into surprises concerning the future path of the funds rate, and uncertainty around that path, and then estimate the impacts of each on equity and currency markets.

Keywords: Forward guidance; zero lower bound; term structure; event study (search for similar items in EconPapers)
JEL-codes: C32 E43 E52 (search for similar items in EconPapers)
Date: 2015-07
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:ime:imedps:15-e-06

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