Evaluating Asset-Market Effects of Unconventional Monetary Policy: A Cross-Country Comparison

Board of Governors of the Federal Reserve System

International Finance Discussion Papers

Number 1101

March 2014

Evaluating Asset-Market Effects of Unconventional

Monetary Policy: A Cross-Country Comparison

John H. Rogers

Federal Reserve Board

Chiara Scotti

Federal Reserve Board

Jonathan H. Wright

Johns Hopkins

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Evaluating Asset-Market Eﬀects of Unconventional

Monetary Policy: A Cross-Country Comparison

∗

John H. Rogers

†

Chiara Scotti

‡

Jonathan H. Wright

March 7, 2014

Abstract

This paper examines the eﬀects of unconventional monetary policy by the Fed-

eral Reserve, Bank of England, European Central Bank and Bank of Japan

on bond yields, stock prices and exchange rates. We use common methodolo-

gies for the four central banks, with daily and intradaily asset price data. We

emphasize the use of intradaily data to identify the causal eﬀect of monetary

policy surprises. We ﬁnd that these policies are eﬀective in easing ﬁnancial con-

ditions when policy rates are stuck at the zero lower bound, apparently largely

by reducing term premia.

∗

We are grateful to David Bowman, Chris Erceg, Joseph Gagnon, Philip Lane, David L´opez-

Salido, Edward Nelson, Charlie Thomas, Beth-Anne Wilson, Egon Zakrajsek and two anonymous

referees for helpful comments. We thank Rebecca DeSimone and Eric English for outstanding

research assistance. All errors are ours alone. The views expressed in this paper are solely the

responsibility of the authors and should not be interpreted as reﬂecting the views of the Board of

Governors of the Federal Reserve System or of any other person associated with the Federal Reserve

System.

†

International Finance Division, Federal Reserve Board, Washington DC 20551;

[email protected]v.

‡

International Finance Division, Federal Reserve Board, Washington DC 20551;

c[email protected]v.

Department of Economics, Johns Hopkins University, Baltimore MD 21218; wrightj@jhu.edu.

JEL Classification: C22, E43, E48

Keywords: Large scale asset purchases, quantitative easing, zero bound, term premium.

1 Introduction

Over recent years, short-term nominal interest rates in many countries have eﬀectively

been driven to the zero lower bound.

Deprived of their traditional tool for policy,

the four major central banks have begun adopting unconventional monetary policy,

including forward rate guidance, asset purchases and programs to directly support

bank lending. These unconventional policies diﬀer across central banks, but have

many points in common (Lenza et al., 2010).

Unfortunately, measuring the eﬀects of monetary policy on other asset prices in

this environment poses special challenges. In normal times, the lumpy manner in

which monetary policy news is released to the public is a powerful source of iden-

tiﬁcation. One can deﬁne a monetary policy surprise as the diﬀerence between the

central bank’s announcement concerning the short-term interest rate and the ex-ante

expectation of this announcement, measured from interest rate futures quotes (Kut-

tner, 2001). And then one can study how other asset prices respond to monetary

policy news, probably safe in the assumption that in a short window around the an-

nouncement, this news is the only driver of asset prices. But with unconventional

policy, there is no clear measure of the central bank’s policy stance, and no easy way

to determine policy expectations. Thus, the simple event-study methodology breaks

down.

But even in the era of unconventional policy, news still comes out in a lumpy

manner. The news is just harder to measure. A number of approaches have been

used to attempt to adapt the conventional event-study approach to examine the eﬀects

of monetary policy surprises in this new environment. Some authors, such as Doh

When we talk about the zero lower bound, we don’t mean that short-term interest rates are

necessarily driven precisely to zero. For institutional and technical reasons, most central banks have

kept short rates a little above zero. Still, for all practical purposes, the US, UK, euro area and

Japan are all eﬀectively at the zero lower bound.

(2010), Gagnon et al. (2011), Meaning and Zhu (2011), Neely (2010), Krishnamurthy

and Vissing-Jorgenson (2011), Joyce and Tong (2012) and Swanson (2011), have

identiﬁed announcements that they argue are complete surprises, and then simply

added up the jumps in asset prices in short windows bracketing these announcements.

This strategy hinges on the entire announcement being unexpected, as was arguably

the case for some important announcements by the Federal Reserve (Fed) and the

Bank of England (BOE) in 2008 and 2009. But most monetary policy announcements

have been at least in part anticipated, with news coming out in a gradual manner

before the announcement.

Another approach, considered by Cahill et al. (2013) and Joyce et al. (2011), is

to estimate the eﬀects of the surprise component of asset purchase announcements,

using survey expectations to measure these surprises. However, surveys have limited

data availability (both in terms of sample period and questions asked) and are not

necessarily perfect measures of investors’ beliefs.

We take a diﬀerent approach in this paper, which is however limited to measuring

the relative eﬀects of monetary policy on diﬀerent asset prices. We deﬁne the mon-

etary policy surprise as the intraday change in government bond yields right around

the announcement, and then regress other asset returns around the announcement

on this measure of the monetary policy surprise. There are two important caveats

to this methodology. First, it only measures the pass-through from a given change

in government bond yields (caused by monetary policy) onto other asset prices, not

the eﬃcacy of monetary policy in aﬀecting government bond yields. But this is still

Some researchers examine the eﬀects of central bank purchases of speciﬁc securities as opposed to

announcements, for example Ghysels et al. (2012) for the ECB Securities Market Program, D’Amico

and King (2013) for the US, or Meaning and Zhu (2011) for the US and UK. We are however focusing

on monetary policy announcements.

For example, the announcement at the June 2013 FOMC meeting about the timeline for ending

asset purchases was not far from survey expectations and yet roiled global ﬁxed income markets.

an important question, as several researchers have questioned the ability of declines

in sovereign bond yields to be transmitted into other asset prices (Eggertsson and

Woodford, 2003; Krishnamurthy and Vissing-Jorgenson, 2013). Second, it measures

the composite eﬀects of monetary policy on asset prices, without decomposing it into

the eﬀects of speciﬁc policies, such as forward guidance or asset purchases. It is dif-

ﬁcult to separate the eﬀects of these diﬀerent types of unconventional policy, since

many announcements covered policies of multiple types. But we do also make an

attempt to separate out the eﬀects of diﬀerent types of unconventional monetary pol-

icy announcements. We also attempt to estimate the persistence of announcement

eﬀects—an important, but particularly diﬃcult task.

Especially in the current environment, the event study methodology is of far

more than academic interest. Policymakers have seen the immediate eﬀects of news

announcements on asset prices, and we strongly suspect that this has in turn helped

to persuade them of the beneﬁts of some unconventional monetary policies. This is

perhaps particularly true for the European Central Bank (ECB).

In this paper, we focus on using intradaily data where possible. The use of in-

tradaily data is potentially helpful to zero in on the window where monetary policy

is the only information coming out (Faust et al., 2007; G¨urkaynak and Wright, 2013).

However, in the current environment, announcements are complicated, and take time

to digest, and are often explained in subsequent press conferences. Consequently,

the assumption that the monetary policy surprise can be directly measured from the

jumps in government bond yields in an intradaily window around the announcement

time may be questionable. Too narrow a window will miss part of the monetary

policy news, but yet too wide a window will contaminate the monetary policy news

with other shocks. Mindful of this concern, we also consider another closely-related

approach, which is identiﬁcation through heteroskedasticity, employing the method-

ology of Rigobon and Sack (2003a,b, 2004, 2005). This only requires us to assume

that days of monetary policy announcements are days on which the variance of mone-

tary policy shocks was especially high—a much weaker restriction. Papers employing

these methods include Gilchrist and Zakrajsek (2013), Raskin (2013), Arai (2013)

and Wright (2012).

The literature on using event-study and related methodologies to measure the

asset price eﬀects of monetary policy shocks in the era of unconventional monetary

policy is large and growing fast. Our paper uses the same general methodologies that

are used in existing work. However, our paper has some novel aspects, such as the

emphasis on intradaily data. And it conducts the analysis on a consistent basis for

the four main advanced-economy central banks: the Fed, the ECB, the BOE and the

Bank of Japan (BOJ).

The plan for the remainder of this paper is as follows. Section 2 summarizes

country experiences with unconventional monetary policy, updating the narrative of

Lenza et al. (2010). Section 3 proposes intraday measures of monetary policy surprises

and examines their eﬀects on other asset prices. Section 4 embeds this identiﬁcation

of monetary policy shocks in a structural VAR, to estimate the persistence of eﬀects.

Section 5 considers the strategy of identiﬁcation through heteroskedasticity. Section

6 contains some discussion of policy implications. Section 7 concludes.

2 Country Experiences with Unconventional Policy

2.1 United States

In the United States, by late 2008 the Federal Open Market Committee (FOMC) had

brought the federal funds rate close to zero—eﬀectively, its lower bound. With the

traditional tool for expansionary monetary policy thus sidelined, the FOMC turned to

unconventional policy options: “forward guidance” about future policy and large-scale

asset purchases (LSAPs). Forward guidance began with simple and general remarks

in the FOMC statements: “economic conditions are likely to warrant exceptionally

low levels of the federal funds rate for an extended period.” This was enhanced in

August 2011, when the Committee speciﬁed “at least through mid-2013” in place of

“an extended period.” The projected end date was pushed into the future several

times, and in September 2012 it was shifted to mid-2015. Forward guidance was

further enhanced with eﬀorts to provide clarity about the economic conditions that

would lead to an unwinding of the unconventional stimulus policies. In January 2012,

the FOMC released a statement specifying its longer-run goals on inﬂation (2 percent)

and the “normal” rate of unemployment (5.2-6 percent). Meanwhile, the Committee

clariﬁed how it would use the federal funds rate to achieve these dual objectives. In

December 2012, the Committee replaced its “calendar guidance” with a statement

anticipating that exceptionally low levels for the federal funds rate will be appropriate

“at least as long as the unemployment rate remains above 6 1/2 percent, inﬂation

between one and two years ahead is projected to be no more than a half percentage

point above the Committee’s 2 percent longer-run goal, and longer-term inﬂation

expectations continue to be well anchored.”

The FOMC has also authorized a series of large scale asset purchases (LSAPs)

of longer term securities. Starting in late 2008, the Fed has purchased longer-term

government agency debt securities and mortgage-backed securities (MBS), and longer-

term Treasury securities. These purchase, which were intended to lower longer-term

interest rates and raise asset prices, added over $2.5 trillion to Federal Reserve as-

sets. The ﬁrst LSAP program, involving agency debt and MBS, was announced in

November 2008. The purchase program was later stepped up and broadened to in-

clude longer term Treasury securities. The ﬁrst round of LSAPs was completed in

March 2010. In November 2010, purchases were again stepped up with reinvestment

arrangements, under which the Fed redeployed the principal payments from agency

securities into purchases of longer term Treasuries. From then until June 2011, the

Fed’s second LSAP program (QE2) involved the purchase of $600 billion in longer

term Treasuries. Since then the FOMC has continued to maintain the level of secu-

rities holdings attained under the LSAPs, with further adjustments to its investment

policy including a shift towards a longer average maturity for its Treasury portfolio.

The two tenets of U.S. monetary policy, forward guidance and LSAPs, are naturally

intertwined, thus posing challenges to econometric identiﬁcation. The eﬀects of asset

purchases depend on expectations of (1) the total value of intended purchases and

(2) how long the FOMC intends to hold them. If the Committee buys today but

sells tomorrow, there will be little eﬀect on those asset prices. To make LSAPs as

eﬀective as possible, the FOMC has attempted to communicate the intended path of

holdings years into the future. These communications issues have become the subject

of considerable discussion in recent months.

2.2 United Kingdom

As part of its response to the global ﬁnancial crisis and domestic economic downturn,

the BOE Monetary Policy Committee (MPC) cut its policy rate from 5 percent in

October 2008 to 0.5 percent, its eﬀective lower bound, in March 2009. But the

Committee also decided it needed to ease monetary conditions further in March 2009

through a £75 billion Asset Purchase program (APF) to purchase public sector assets

with residual maturity of 5-25 years ﬁnanced by creation of central bank money.

The

APF size was gradually increased from £75 billion to £200 billion in February of 2010.

Following a pause, the MPC resumed increasing the size of the APF in October 2011,

reaching £375 billion by the end of 2012. In addition to the £375 billion ﬁnanced

by reserve issuance, the BOE is also authorized to purchase up to £10 billion in

private assets ﬁnanced by Treasury issuance

. But at the time of writing, the APF

has no such assets. The BOE is indemniﬁed by the UK Treasury against losses on

the APF. On August 7 2013, BOE adopted a forward guidance framework with the

intent of clarifying its policy reaction function and thus “give conﬁdence to businesses

and households that policy will not be tightened until there is material reduction in

economic slack” (Charlie Bean, Deputy Governor of BOE for monetary policy). The

BOE’s forward guidance is conditional on the unemployment rate reaching a threshold

of 7 percent.

2.3 Euro Area

Following Lehman’s collapse, the spread between unsecured interbank deposit rates

(EURIBOR) and overnight indexed swap (OIS) rates at the three-month maturity

peaked at 200 basis points in the euro area. In response, on October 8, 2008 the ECB

cut its key policy rate by 50 basis points, part of a coordinated eﬀort with several

major central banks, including the Fed, the BOE and the BOJ. Soon after, the ECB

announced several important innovations in its operational procedures. Giannone

The UK APF was actually announced in January of 2009 when the UK Treasury authorized

the BOE to buy up to £50 billion of “high quality private assets” to “increase the availability of

corporate credit by reducing the illiquidity of the underlying instruments” . Because Treasury would

ﬁnance these purchases through the sale of short-term gilts, they would not constitute quantitative

easing. Real quantitative easing, was introduced in March of 2009 with the announcement of the

£75 billion APF.

This limit on the purchases of private sector assets had been £50 billion, but was reduced in

November 2011, following an exchange of letters between the Governor and the Chancellor.

et al. (2011) discuss the ECB’s actions at this time in detail. Starting in 2009,

the strains from the Great Recession, and the costs that governments faced to bail

out their insolvent banking systems, began to cause euro-area sovereign debt spreads

to increase, and eventually led to questions about the sustainability of the single

currency area.

The ECB’s actions were guided by the limitations placed on it by the Lisbon Treaty

which prohibits the Eurosystem from conducting purchases of sovereign debt that are

interpreted as sovereign bailouts (Article 125) or monetary ﬁnancing (Article 123).

Asset purchases, the magnitude of which are practically negligible, have been therefore

conducted with the objective of addressing market dysfunctions and repairing the

transmission mechanism of monetary policy. The ECB introduced the Securities

Market Programme (SMP) in May 2010 and the Outright Monetary Transaction

(OMT) program in August 2012 to purchase euro-area sovereign debt. Because these

programs are sterilized, they technically do not constitute monetary easing. It is

noteworthy that the OMT has not been activated so far. The ECB also introduced

in 2009 and 2011 two Covered Bond Purchase Programmes (CBPP1 and CBPP2) to

buy covered bonds across the Euro Area in both primary and secondary markets.

In addition, the ECB introduced a number of new measures within its regular mon-

etary policy framework. First, the ECB adopted in October 2008 a ﬁxed rate/full

allotment (FRFA) tender procedure in its monetary policy operations, which is cur-

rently supposed to be maintained till mid-2015. This measure helped to stabilize the

banking sector at a time of signiﬁcant stress by deferring to its counterparties the de-

cision on the quantity of liquidity to be provided. Second, the ECB expanded its list

of eligible collateral, for example by reducing the rating threshold for certain securi-

ties and by allowing National Central Banks (NCBs) to accept as collateral additional

performing credit claims, provided the NCBs retained the credit risk associated with

such transactions. Third, the ECB increased the number and variety of Eurosystem

longer-term reﬁnancing operations (LTROs). In normal times, ﬁnancial institutions

borrow from the Eurosystem through regular open market operations with maturi-

ties of 7-days (Main Reﬁnancing Operations, MRO) or 3-months LTROs. Over time,

the ECB has introduced special 1-, 6-, 12-, 24- and 36-month operations. In 2009,

the ECB conducted three 1-year LTROs, with the ﬁrst 1-year LTRO eliciting e442

billion in demand. In October 2011, the ECB reintroduced two 1-year LTROs, but

the second operation was replaced by the ﬁrst 3-year LTRO. On December 2011, in

fact, the ECB introduced two 3-year LTROs that elicited an extraordinary demand.

Fourth, the ECB decreased the reserve ratio from 2 to 1 percent, eﬀective January

18, 2012, which freed up over e100 billion.

Since 2008, the ECB has also announced several changes to its target rate, the

MRO rate. The rate was cut from 4.25 percent in early October 2008 to 1 percent by

May of 2009. Despite a short-lived reversal in 2011 when the MRO rate was increased

to 1.5 percent, the ECB has been lowering its target rate over the past two years.

The rate reached 25 basis points in November 2013.

2.4 Japan

The BOJ has experimented with unconventional policies since the late 1990s and

was the ﬁrst major central bank to introduce a policy of quantitative easing (QEP)

as well as forward guidance. QEP was structured in three parts: a commitment

to maintain zero interest rates until deﬂation clearly ended (forward guidance); a

signiﬁcant increase in the Bank’s balance sheet; and a change in the composition

of that balance sheet by increasing its outright purchases of longer-dated Japanese

The ECB only began providing some qualitative forward guidance in July 2013, a substantial

change in ECB communication, as both Draghi and his predecessor, Trichet, had stated that the

ECB would never pre-commit.

government securities. Overall in Japan, because many important measures were

introduced at the same time of the forward guidance, it is diﬃcult to gauge the

eﬀectiveness of this commitment. QEP was implemented initially from 2001 to 2006

and then again beginning in 2011 and with Abenomics. The initial foray of the BOJ

into quantitative easing policy was from March 2001 to March 2006. Japan faced low

economic growth, persistent deﬂation and a great number of non-performing loans in

its banking system left over from the ﬁrst Asian ﬁnancial crisis of 1997 and the dot-

com bubble that burst in 2000.

Initially, the BOJ increased the outstanding balance

of current accounts held at the BOJ from 4 to 5 trillion yen. Its initial outright

purchase pace of long-term government bonds was U400 billion per month. Over the

ﬁve years that the program was in place, the BOJ raised its current–account target

six times.

In 2006 and 2007 the BOJ allowed short-term bonds to roll-oﬀ in preparation for

raising rates, but in October of 2010 it announced another Asset Purchase Program

(APP). The APP was part of the Comprehensive Monetary Easing together with

a “virtually zero interest rate” policy and a commitment to maintain zero interest

rates until the BOJ judged that price stability (i.e. 1 percent inﬂation) was in sight.

The APP aimed at reducing term and risk premia through purchases of government

securities, corporate bonds, commercial paper, exchange-traded funds (ETFs), and

real estate investment trusts (REITs). Its size was initially set at U35 trillion, but

At the same time QEP provided the banking system with liquidity, the BOJ and Japan’s govern-

ment stepped up programs from the late 1990s designed to remove NPLs from bank balance sheets.

The government provided a blanket guarantee on deposits and enabled the Resolution and Collection

Corporation (RCC) to purchase non-performing loans and the Industrial Revitalization Corporation

of Japan (IRCJ) to purchase loans from those ﬁnancial institutions that had been deemed to be

sound. In addition, in October 2002, the BOJ announced the Stock Purchasing Program in which

the Bank purchased stocks held by commercial banks. By the time the program ended in September

2004, the Bank held a total value of U2 trillion of equities purchased from Japanese banks. By the

summer of 2003 the BOJ was also purchasing asset-backed commercial paper and securities from

bank directly.

increased to U101 trillion by December 2012. On April 4, 2013, the BOJ announced

its Qualitative and Quantitative Easing in which it increased purchases of Japanese

government bonds (JGBs) to U50 trillion yen a year (from U20 trillion in 2012), and

it extended the average maturity from 3 to 7 years. In the same announcement the

BOJ committed to increase the monetary base at a pace of U60-70 trillion a year over

the next two years and it set an explicit two-year time horizon to achieve a 2 percent

inﬂation target.

3 Immediate Announcement Eﬀects of Monetary

Policy News

For the diﬀerent central banks, we list the monetary policy announcement days that

we consider in Tables 1-4, and we also report the times of these announcements, which

are important for our intraday analysis. Most announcements concern unconventional

monetary policy initiatives, though there were some changes in short-term policy

interest rates over this period. Most announcements consist of statements after policy

meetings, but some important speeches and other events are included as well. Our

goal is to study the ﬁnancial market eﬀects of these announcements.

We consider a large number of announcements, most of which were either not very

consequential, or largely anticipated. But there are several policy announcements that

came as big surprises, which is of course what we want for identiﬁcation. Four good

examples are the BOE and FOMC announcements of Treasury purchase programs in

March 2009, the announcement of open-ended asset purchases by the BOJ on April

4, 2013, and the FOMC meeting of June 19, 2013, signalling an earlier-than-expected

end to LSAPs. We examine the eﬀects of these announcements on government bond

yields in the country/currency area for which the announcement was made. Figure 1

plots the change in zero-coupon yields and forward rates of diﬀerent maturities (the

forward rate yield curve) using daily government yield curve data bracketing each of

these announcements.

Looking at forward rates is useful, because under the expectations hypothesis of

the term structure, these should be equal to expected future short rates. So this can

give us an idea of whether a downward shift in the yield curve owes to the central

bank eﬀectively committing to keep rates at zero for longer than had been expected,

as prescribed by Eggertsson and Woodford (2003), or to falling term premia. A fall in

yields that is concentrated in forward rates two or three years hence could potentially

be interpreted as either pushing back the expected timing of liftoﬀ from the zero lower

bound, or as a drop in the term premia. But a fall in yields that is concentrated in

forward rates ﬁve years and beyond is only plausibly interpretable as a decline in term

premia—a central bank cannot provide credible forward guidance at these horizons.

Indeed, any eﬀect of monetary policy accommodation on long-term expectations of

future short rates should be for them to go up, as a more accommodative stance of

policy raises perceptions of steady-state inﬂation (G¨urkaynak et al., 2005a).

The March 2009 announcement by the BOE and the April 2013 announcement by

the BOJ both produced the largest declines in long-term rates, including big drops

in forward rates ten to twenty years hence. For these two announcements, it seems

clear that the decline in rates owes to a fall in the term premium. The asset purchase

program announced by the Fed in 2009 was explicitly limited to bonds in the two-

to-ten-year sector and so it is natural that these rates fell the most. But forward

rates ﬁve-years-ahead and beyond dropped sharply, and again declining term premia

seems very likely to be the main explanation. Just to get an idea of scale, the drop in

ten-year yields on the day of the March 2009 FOMC meeting was the largest one-day

absolute change in ten-year yields from 1987 to the time of writing.

The June 2013 FOMC meeting was an example of a surprise going in the opposite

direction, and is signiﬁcant to policy going forward for that very reason. As investors

read the announcement and press conference as signaling an earlier-than-expected

end to LSAPs, they brought forward their expected timing of the onset of monetary

policy tightening and drove term premia higher. The shift in forward rates was a

bit more front-loaded than for the other three announcements considered in Figure

1. At the same time, interest rate uncertainty, as measured by options, increased

substantially. That seems consistent with a rebound in term premia. A variety of

other pieces of monetary policy news in the US around this time, such as Chairman

Bernanke’s testimony to Congress on May 22, 2013, produced similar eﬀects.

Besides the fact that these announcement produced large shifts in forward rates

at the ﬁve-year-ahead horizon and beyond, there are two other reasons for thinking

that much of these yield curve movements represent shifts in term premia. First,

surveys have shown no evidence of long-horizon expectations of future short rates

moving much, except that long run inﬂation expectations have moved up recently in

Japan, which makes the presumptive term premium shift in that country even bigger.

Second, in these and other episodes, it was the speciﬁc securities that the central bank

intended to buy whose prices moved the most (see for example D’Amico et al. (2012)

and Joyce and Tong (2012)).

3.1 Pass-through beyond government bond yields

From these events, we take it as given that central banks are capable of producing

meaningful immediate eﬀects on their own government bond yields, that probably

Term premia shifts can be further decomposed into duration risk premia and local supply eﬀects,

see for example D’Amico et al. (2012) and Cahill et al. (2013).

mainly reﬂect shifts in term premia. The remainder of the paper seeks to measure

the pass-through into other asset prices, and also the persistence of these eﬀects. We

can measure monetary policy surprises as intraday changes in government bond yields

right around the announcement time. For the US, this is the ﬁrst principal component

of the change in yields for two-, ﬁve- and ten- and thirty-year Treasury futures.

For

the UK, it is the change in long gilt futures yields. For Japan, it is the change

in ten-year JGB futures yields. Given the unique circumstances facing the euro

area, we measure ECB monetary policy surprises somewhat diﬀerently as intraday

changes in cash-market spreads between yields on Italian ten-year government bonds

and their German counterparts. More on this in subsection 3.2 below. In all cases,

the intraday window is either from 15 minutes before to 15 minutes after (narrow

window), or from 15 minutes before to 1 hour 45 minutes after (wide window). All

monetary policy surprises are normalized to be of 25 basis point magnitude, and

all surprises are signed so that a positive surprise represents an easing of monetary

policy—the surprise is minus the relevant yield change.

The idea of measuring monetary policy surprises directly from asset prices was also

considered by G¨urkaynak et al. (2005b) who used near-term money market futures

quotes to measure the eﬀect of monetary policy announcements on expectations of

the path of policy during the period of conventional monetary policy. Wright (2012)

extended this to using Treasury futures during the recent period of unconventional

monetary policy, and the same approach is used in Glick and Leduc (2012). But in

this paper we are applying the idea to the announcements from all four central banks.

Having obtained a measure of monetary policy surprises, for each central bank we

For all government bond futures, yield changes are approximated by dividing price changes by

minus the modiﬁed duration of the cheapest-to-deliver security.

consider regressions of the form:

∆y

= βM P S

+ ε

(1)

where ∆y

denotes a yield change or asset price returns in a daily or intradaily window

bracketing the announcement and MP S

denotes the monetary policy surprise. The

ﬁnancial asset prices consist of intradaily data on bond, stock and exchange rate

futures, combined with daily data on corporate bond yields, the MOVE index

and

euro-area sovereign yields, as listed in Table 5. The regressions are run without an

intercept. Our sample period goes from around the start of the era of unconventional

policy through June 2013; the data start in January 2007 for Japan, in August 2007

for the ECB, in November 2008 for the Fed, and in January 2009 for the BOE.

The results using the narrow window to measure both the monetary policy sur-

prises and the intradaily changes on the left hand side of equation (1) are shown in

Table 6. The corresponding results using the wide window are reported in Table 7.

Here and throughout this paper, we estimate regressions by robust regression to avoid

excessive inﬂuence of outliers.

In most cases, OLS estimation would give similar

results, but there are some parameters where limiting the inﬂuence of outliers makes

a substantial diﬀerence.

Using the narrow window (Table 6), for the Fed, BOE or BOJ, the expansionary

monetary policy surprise signiﬁcantly lowers corporate bond yields, but the fall in

corporate bond yields is less than one-for-one. That in turn means that the yield

spreads of corporate bonds over their sovereign counterparts widens, but of course

what matters for economic activity is the rate, not the spread. Still it is important to

be clear that the risk premium which is potentially decreasing is the term premium on

The MOVE index is an index of options-implied interest rate volatility.

We use the robust regression M-estimator of Huber (1981) with the bisquare weighting function.

government bonds,

not the risk premium component of the corporate-government

bond spread.

The expansionary monetary policy shock signiﬁcantly raises domestic stock prices

in the US and the euro area, but not in the UK or Japan. This is consistent with

the existing literature. Rosa (2012) found that UK monetary policy shocks have

comparable eﬀects on other ﬁxed income markets to their US counterparts, but have

smaller eﬀects on equity markets, and Arai (2013) found a similar result for Japan.

An expansionary monetary policy shock by the Fed, BOE or BOJ causes the

domestic currency to depreciate signiﬁcantly. But for the ECB, the eﬀect goes in the

opposite direction. The euro-area expansionary monetary policy surprise leads the

euro to appreciate signiﬁcantly, and also causes German bond and euro-area corporate

bond yields to rise signiﬁcantly, presumably because the surprise lessened safe-haven

ﬂows into bunds and promoted ﬁnancial stability and conﬁdence in the survival of

European monetary union. The euro-area expansionary monetary policy surprises

causes the pound to appreciate slightly (but signiﬁcantly) viz-a-viz the dollar and

causes Spanish sovereign yields to fall sharply.

Also, we ﬁnd that monetary policy shocks in one currency area aﬀect bond yields in

other currency areas, but the spillovers go mainly from US monetary policy surprises

to non-US yields rather than the other way round. For example, the US monetary

policy surprise that lowers the ten-year US yield by 25 basis points reduces German

and UK ten-year yields by 11 and 10 basis points respectively. The UK monetary

Traditionally, we think of this as not embodying any default risk, but rather just the risk of

capital loss if the bonds are sold prior to maturity. Recent events in both Europe and the United

States may have made the traditional assumption less plausible.

Most of the asset prices that we consider relate to large and liquid markets, such as stock and

bond futures or foreign exchange. But for the corporate bond indices, there is a potential concern

that prices may be stale. We investigated estimating equation (1) with two-day changes in corporate

bond yields on the left-hand-side (changes from the day before the announcement to the day after).

Coeﬃcient estimates were generally bigger than using one-day changes, but the results were not

qualitatively diﬀerent.

policy surprise has a smaller but signiﬁcant eﬀect on US ten-year yields, and the

euro and Japanese monetary policy surprises have no signiﬁcant eﬀect on US ten-

year yields. This asymmetry has been found in sample periods covering conventional

monetary policy by researchers including Ehrmann and Fratzscher (2005), though

G¨urkaynak and Wright (2011) found that some non-US conventional monetary policy

announcements also aﬀect the US yield curve. Fratzscher et al. (2013) provide a

detailed study of the eﬀects of US unconventional monetary policy announcements

and actions on global asset prices and portfolio ﬂows.

The eﬀects of monetary policy shocks on exchange rates and foreign interest rates

are very important, as they represent unintended policy spillovers. Monetary policy

easing by the Fed has oﬀsetting eﬀects on the rest of the world; it causes other

currencies to appreciate viz-a-viz the dollar, but at the same time it reduces longer-

term interest rates in other countries. Conversely, monetary policy easing by non-US

central banks causes the dollar to appreciate, and may cause longer-term US interest

rates to fall, but we ﬁnd this latter eﬀect only for UK easings, and even in this case

it is small.

Results are generally similar using the wide window (Table 7). However, there

are some diﬀerences. The estimated eﬀect of an expansionary UK monetary policy

surprise on the exchange value of the pound is smaller in the wide window than in

the narrow window. The eﬀect of an expansionary Japanese monetary policy surprise

on stock prices is signiﬁcantly negative in the wide window. In this case, we suspect

that moving to the wider window has contaminated the monetary policy surprise with

other shocks, which is the downside of using a wider window.

3.2 Euro-area monetary policy shocks

Our measurement of monetary policy shocks in the euro area is diﬀerent from that

for the other central banks. It might seem more natural to measure euro-area mon-

etary policy surprises from intraday changes in German bond yields, as this would

be more directly parallel to the treatment of the US, UK and Japan. However, the

actions of the ECB over this particular period, as discussed the previous in section,

were clearly aimed at intra-euro area sovereign spreads, not at the level of German

interest rates. ECB President Draghi has emphasized the special importance of

intra-euro area spreads in the transmission mechanism of monetary policy, under the

unusual circumstances of the last few years. Indeed, actions that succeded in lower-

ing sovereign spreads tended to drive German yields up. Thus, measuring monetary

policy from German yields alone would result in the perverse conclusion that these

actions, such as the OMT announcement, represented an attempt by the ECB to

tighten ﬁnancial conditions. Intra-euro area sovereign spreads reﬂect default risk and

default risk premia that are normally thought of as being separate from monetary

policy. But the special circumstances of the euro area in the last few years—where

monetary policy was aimed at reducing default risk and risk premia—mean that it is

appropriate to measure monetary policy diﬀerently. Consequently it is not surprising

that monetary policy had quite diﬀerent eﬀects in the euro area and elsewhere.

3.3 Comparison with Conventional Monetary Policy

Our analysis in this paper applies only to the period of unconventional monetary

policy. In this subsection we compare our ﬁndings with those of other studies that

apply to the earlier period of conventional monetary policy. On pre-ZLB US data,

G¨urkaynak et al. (2005b) estimated that a 25 basis point surprise reduction in the

federal funds rate caused ten-year yields to fall by about 10 basis points and stock

prices to rise by about 2 percentage points. In our sample we ﬁnd that a 25 basis point

surprise reduction in the ten-year yield (without any change in the federal funds rate)

causes stock prices to rise by 0.7 percentage points. The pre-ZLB and ZLB eras are

thus estimated to be quite diﬀerent. Clearly, monetary policy is working at diﬀerent

points on the term structure: It has the largest eﬀects on short-term interest rates

in conventional monetary policy, but the largest eﬀects on long-term interest rates in

unconventional policy. But, in addition, a given decline in long-term interest rates

caused by monetary policy had a much larger eﬀect on stock prices in the conventional

monetary policy period than it does with unconventional policy. According to the

estimates of G¨urkaynak et al. (2005b), in the pre-ZLB period, the federal funds rate

would have to be cut by about 60 basis points to lower ten-year yields by 25 basis

points, and this should in turn boost stock prices by about 5 percentage points. Our

estimates over the ZLB period are much smaller.

For the UK, we ﬁnd no statistically signiﬁcant eﬀect of unconventional-period

monetary policy surprises on stock prices; earlier studies from the pre-ZLB period

found that surprise Bank of England easings had a signiﬁcant positive eﬀect on stock

prices, although the magnitude was smaller than pre-ZLB estimates for the US (see,

e.g. Bredin et al. (2007)).

We estimate that unconventional monetary policy surprise easings cause corporate

credit spreads to increase (corporate yields fall, but by less than their sovereign coun-

terparts). With conventional monetary policy, the empirical evidence indicates that

surprise reductions in short-term policy interest rates cause corporate credit spreads

to fall (see, e.g. Cenesizoglu and Essid (2012)).

In relation to the stock market and corporate yields, we thus ﬁnd some evidence

that while unconventional monetary policy has eﬀects on these other markets, the

ZLB constraint makes it less powerful than conventional monetary policy. Kiley

(2013a,b) also reached this conclusion. On the other hand, the estimated eﬀect on the

foreign exchange value of the dollar of a monetary policy surprise that lowers ten-year

Treasury yields is roughly similar with conventional and unconventional monetary

policy (Glick and Leduc, 2013).

3.4 Econometric Comment

The concerns with window size in estimating equation (1) have motivated some re-

searchers, such as Kiley (2013b) and Gilchrist et al. (2013) to consider an instrumental

variables (IV) strategy. This methodology involves estimating the regression using

daily changes, but instrumenting the daily change in yields on the right-hand-side with

an intraday change in yields around the monetary policy announcement. However,

there is a strong presumption in ﬁnance that the serial correlation of yield changes

in adjacent windows is small.

Given this presumption, the population expectation

of the daily yield change conditional on the intradaily yield change should be equal

to the intraday yield change. Since an IV estimator can be interpreted as the OLS

estimator, replacing the right-hand-side variable with its projection onto the instru-

ment, this means that the IV estimator should be the same in large samples as just

running an OLS regression with the intraday yield change on the right-hand-side. In

small samples they will be diﬀerent, but that is because there happens to be some

serial correlation in yield changes in a particular sample. Since we think that any

serial correlation in yield changes is best thought of as a “ﬂuke”, we prefer not to

rely on it, and consequently just run the regression in equation (1) by OLS, with

intradaily changes as the right-hand-side variable. If the intraday window includes

If a yield change in one part of the day is serially correlated with a yield change in a later part

of the day, then it implies a massive failure of eﬃcient markets.

shocks other than the monetary policy surprise, then this method will fail, but so will

the IV strategy. If this is the concern, then identiﬁcation through heteroskedasticity

is the appropriate econometric technique, and we consider this in section 5 below.

3.5 Eﬀects of Diﬀerent Types of Announcements

Generally in this paper, we are examining the composite eﬀects of unconventional

monetary policy, without decomposing it into forward guidance, asset purchases,

policies to relieve strains in particular markets and so on. But in this subsection we

attempt to break out the eﬀects of diﬀerent types of announcements. We adopt two

methods to do this.

3.5.1 Judgmental Classiﬁcation of Announcements

The ﬁrst method that we consider is to split monetary policy announcements into

diﬀerent types. For the Fed, we split announcements into those that we view as pre-

dominantly containing news about LSAPs and the other announcements, as marked

in Table 1. There are of course many announcements that have elements of both,

which is the limitation of this method, but we nevertheless attempt to put each an-

nouncement into one of these categories.

Then we estimate equation (1) using the

narrow window for LSAP and other announcement days separately. The results are

reported in Table 8. The monetary policy shock has a larger eﬀect on two-year yields

on non-LSAP days than on LSAP days, which makes sense because forward rate guid-

ance is the most important unconventional policy other than asset purchases, and its

eﬀects should be concentrated on the short end of the yield curve. LSAP announce-

ments have signiﬁcant eﬀects on corporate bond yields and the stock market, whereas

Our classiﬁcation of FOMC announcements is similar to, but not the same as, that of Gilchrist

et al. (2013).

non-LSAP announcements do not.

The same approach applies to the other central banks. For the BOE and BOJ, we

split announcements into those that were primarily concerned with the asset purchase

programmes and other announcements, as marked in Tables 2 and 4. For the ECB,

we split announcements into those based on bond purchases, those based on LTROs,

and other announcements, as marked in Table 3.

Tables 9, 10 and 11 report the results from estimating equation (1) for these

diﬀerent announcement types for the BOE, ECB and BOJ, respectively.

For the BOE (Table 9), monetary policy shocks are estimated to a have signiﬁcant

eﬀect on the exchange rate both on asset purchase and other announcements, but the

magnitude of the response is larger on asset purchase days. Monetary policy shocks

are estimated to have a signiﬁcant eﬀect on corporate bond yields on asset purchase

days, but not on other days.

For the ECB (Table 10), bond purchase and LTRO announcements both reduce

Italian and Spanish yields and boost stock prices, and all of these eﬀects are statis-

tically signiﬁcant. Other announcements reduce Italian yields, raise German yields,

and have a smaller but signiﬁcant positive eﬀect on stock prices.

For the BOJ (Table 11), the asset purchase announcements are estimated to have a

larger eﬀect on the dollar-yen exchange rate and on stock prices than other monetary

policy announcements.

Broadly, our results in Tables 8-11 suggest that—to the extent that we can sep-

arate unconventional monetary policy announcements into those that concern as-

set purchases and those that do not—the pass-through from the former is generally

larger.

3.5.2 Two dimensions of monetary policy measured from the yield curve

The second method that we consider for examining the eﬀects of diﬀerent kinds of

central bank announcements is applicable to the US alone, because this is the only

country for which our intradaily data gives us yields at diﬀerent maturities (Table 5).

For the US, we measure a two-dimensional surprise on monetary policy announcement

days: the ﬁrst two principal components of the change in two-, ﬁve- and ten- and

thirty-year Treasury futures yields. We then consider regressions of the form:

∆y

= β

MP S

+ β

MP S

+ ε

(2)

where M P S

and M P S

denote the two kinds of monetary policy surprises. The

results are reported in Table 12 (using the narrow window). The ﬁrst monetary

policy surprise raises all rates, but especially at the long end. We interpret this as

an expansionary LSAP shock. The second monetary policy surprise rotates the yield

curve, pushing short rates down and long rates up. We interpret this as forward

guidance shock. The ﬁrst monetary policy shock has large and signiﬁcant eﬀects;

it drives all yields including corporate yields down, causes the dollar to depreciate,

and stock prices to rise. The second monetary policy shock rotates the Treasury

yield curve, but has no signiﬁcant eﬀect on stock prices, corporate bond yields or the

foreign exchange value of the dollar.

However, an expansionary value of the second (non-LSAP) monetary policy shock

on the MOVE index is signiﬁcantly negative. As forward guidance is the most signiﬁ-

cant non-LSAP element to US monetary policy, this suggests an important mechanism

through which forward guidance may be eﬀective, that has received little emphasis in

the literature. Forward guidance may not only lower the expected path of monetary

policy, but it may also reduce uncertainty about future policy, and thereby lower term

premia

(see Akkaya (2014) for further discussion of this possibility).

3.6 Asymmetry

It is possible that surprise tightenings and easings of monetary policy might have

diﬀerent eﬀects on asset prices. The possibility has been investigated in the context of

conventional monetary policy (e.g. Kuttner (2001)) and little evidence for asymmetry

has been found. It is a bit diﬃcult to investigate in the context of unconventional

monetary policy because most (but not all) surprises have been easings.

Nonetheless, to attempt to investigate the possibility, we augmented equation (1)

with an interaction with a sign dummy, considering the speciﬁcation:

∆y

= β

MP S

+ β

MP S

1(MP S

> 0) + ε

(3)

Our focus is on β

. Estimates of the coeﬃcients in equation (3) are reported for some

asset prices in Table 13 (using the narrow window). In interpreting these results,

recall that a positive value of MP S

refers to a surprise easing. In most cases β

is not

statistically signiﬁcant. But it is statistically signiﬁcant for the eﬀects of monetary

policy surprises on stock returns in the US and the UK (at the 10 percent level in

the latter case). The interpretation of the estimated coeﬃcient is that the boost to

stocks from an expansionary monetary policy shock is larger in magnitude than the

negative impact on stocks of a surprise monetary policy tightening.

Term premia are important (and time-varying) even for fairly short-term interest rates (Piazzesi

and Swanson, 2008)

3.7 Crisis and non-crisis subsamples

One might wonder if the eﬀects of monetary policy shocks were diﬀerent during the

acute phase of the global ﬁnancial crisis. Models of market segmentation suggest that

asset purchases should be particularly eﬀective in lowering the prices of the assets

being purchased when arbitrage capital is scarce and markets are not functioning

normally (Vayanos and Vila, 2009; Greenwood and Vayanos, forthcoming). Multiple

equilibria stories are also more persuasive in times of crises. IMF (2013) suggest

that asset purchases may be most eﬀective at times of crises. However, this paper

is mainly concerned with estimation of pass-through—given an x basis point drop

in domestic government bond yields caused by unconventional monetary policy, we

study the spillover eﬀects on other asset prices. This kind of pass-through might be

smallest when arbitrage capital is scarcest.

To investigate the question empirically, we estimated equation (1) using the narrow

window for all four central banks, splitting the sample into subsamples for 2008 and

2009 and other years. We view these as crisis and non-crisis subsamples. Coeﬃcient

estimates are reported in Table 14. For the Fed and BOE, the main diﬀerence between

the crisis and non-crisis subsamples is that the standard errors tend to be bigger in the

latter, because all the big surprises happened in 2008 and 2009. There is no consistent

pattern of pass-through being larger or smaller in the two subsamples. For the ECB,

things are quite diﬀerent. The standard errors are larger in the 2008/2009 subsample

and pass-through into corporate yields, stock prices and the foreign exchange value

of the euro is signiﬁcant only in the other subsample. But this is not surprising—

although 2008/2009 was the peak of the global ﬁnancial crisis, the euro-speciﬁc crisis

came later. For the ECB, the largest monetary policy surprises were clearly in 2011

and 2012. For the BOJ, there were relatively large monetary policy surprises both

during 2008/2009 and at other times (before and since). However, the signiﬁcant

eﬀect of BOJ monetary policy surprises on the foreign exchange value of the yen was

found only during the non-2008/2009 subsample.

4 Persistence

The method described in section 3 is intended to measure the immediate eﬀect of

monetary policy shocks on asset prices. It is obviously important to know how per-

sistent these eﬀects are. The normal presumption in the event study literature is

that the eﬀects are long-lasting (Fama et al., 1969). But there are several natural

mechanisms that might cause the eﬀects of unconventional monetary policy surprises

to wear oﬀ over time including:

(1) Quantitative easing may make the economy recover faster than would otherwise

have been the case, ultimately driving interest rates back up.

(2) Quantitative easing may induce more corporate issuance of long-term bonds

(Stein, 2012), which would in turn also tend to push long-term rates higher.

(3) Frictions may make arbitrage capital slow-moving—and thus better able to

oﬀset the impact of preferred habitat investors in the long-run than in the

short-run (Duﬃe, 2010; Mitchell et al., 2007).

(4) Many of the important unconventional monetary policy surprises took place at

a time when ﬁnancial markets were impaired, and so eﬀects of asset purchases

on bond yields may have been particularly large. As arbitrage capital returned

to ﬁnancial markets, the eﬀects would have got smaller.

(5) Some part of the eﬀect of unconventional monetary policy surprises was to lower

the near-term expected path of the federal funds rate. But, in the absence of

any further news, the impact of this shift on the ten-year yield mechanically

disappears with the passage of time.

Lou et al. (2013) document that the increase in Treasury supply associated with

new auctions has an impact on bond prices, but that it wears oﬀ within days. Casual

empiricism indicates that the eﬀect of unconventional monetary policy announce-

ments on asset prices does not wear oﬀ that fast. At same time, some tendency for

the eﬀects of policy shocks to weak oﬀ is arguably implicit in the results of existing

studies, at least for the US. Gagnon et al. (2011) add up the announcement eﬀects

of LSAP announcements from November 2008 to November 2009 on ten-year yields,

and ﬁnd that it comes to 91 basis points. These announcements were essentially

complete surprises, and so this is a natural way to assess their immediate impact. It

is harder to measure the eﬀects of FOMC actions since November 2009 on Treasury

yields, because news about these did not come out in clear surprise announcements.

But Li and Wei (2013) argue that as of 2012, all the LSAPs jointly had lowered

ten-year Treasury yields by 100 basis points, and that seems a reasonable calibra-

tion. However, if these numbers are to be reconciled, then either the FOMC actions

since November 2009 had minimal eﬀects

, or else the 91 basis points of easing in

2008-2009 must have worn oﬀ, at least in part.

An approach for assessing persistence more formally is to use a VAR in daily

asset price data. We brieﬂy summarize the econometric method, discussed in more

detail in Wright (2012). We assume that a px1 vector of yields, observed at the daily

There is plenty of evidence against this; for example D’Amico et al. (2012) estimate that the

second LSAP program lowered ten-year yields by 55 basis points.

frequency, Y

, has the reduced form VAR representation

A(L)Y

= µ + ε

(4)

where ε

denote the reduced form forecast errors. We further assume that these re-

duced form errors can be related to a set of underlying structural shocks

= Σ

i=1

i,t

(5)

where η

i,t

is the ith structural shock, R

is a px1 vector, and the structural shocks

are independent of each other and over time. The monetary policy shock is ordered

ﬁrst, for notational convenience only.

We can then regress the reduced form errors onto the monetary policy shocks

identiﬁed from intradaily data in section 3. This immediately gives us an estimate

of R

and allows us to estimate the VAR. Inference can then done using the bias-

adjusted bootstrap of Kilian (1998).

We applied this method to data from the United States, United Kingdom, euro

area, and Japan and ﬁtted a VAR to daily data on two- and ten-year government

bond yields and corporate yields as listed in Table 5. For the euro area, we ﬁtted

a VAR to daily data on ten-year Italian, Spanish and French spreads over their

German counterparts, ten-year German bond yields, and corporate bond yields as

listed in Table 5. In all cases the number of VAR lags was determined by the Bayes

Information Criterion. The impulse responses function estimates and 90 percent

bootstrap conﬁdence intervals applying the method to the US, UK, euro area and

Japan are reported in Figures 2-5, respectively.

For the US, UK and Japan (Figures 2, 3 and 5), the eﬀect of the monetary

policy shock on ten-year government bond yields and on corporate bond yields is

signiﬁcant at short horizons. The persistence of the eﬀects is not precisely estimated,

but the point estimates indicate that the eﬀects “wear oﬀ,” but do so fairly slowly. For

Japan, the eﬀect on two-year yields is estimated to be very small, and not statistically

signiﬁcant, likely because two-year yields have been clearly constrained by the zero

lower bound in Japan for the last few years.

For the euro area (Figure 4), the expansionary monetary policy shock lowers Ital-

ian, French and Spanish government bond spreads over their German counterparts,

and the eﬀect remains statistically signiﬁcant for some time. The expansionary mon-

etary policy shock is also estimated to raise German and corporate bond yields, but

these impulse responses are only signiﬁcant at the shortest horizons.

5 Identiﬁcation Through Heteroskedasticity

The methodologies in the last two sections rely on the window being suﬃciently small

that the monetary policy announcement is the only shock within this window. This

may be a reasonable approximation if the window is very short. But monetary policy

announcements in the last few years have been complicated and may take time for

markets to digest.

And they are coupled with press conferences that come a bit

later. That motivates a winder window, which in turn makes it likely that other

shocks will come in that contaminate the monetary policy surprise.

An alternative approach is given by identiﬁcation through heteroskedasticity. This

does not require us to assume that monetary policy surprises are directly measurable.

For example, the word count of FOMC statements has on average gone from around 200 in

2008 to over 600 in 2013. The more recent statements have addressed the size and composition of

LSAPs, calendar and forward guidance, exit principles, etc.

Instead, it uses daily data and posits that in the structural VAR model given by

equations (4) and (5), the structural monetary policy shock η

1,t

has mean zero and

variance σ

on announcement days, and variance σ

on all other days, while all other

structural shocks are identically distributed on all days. The identifying assumption

is that σ

6= σ

. We just need to know that there is something special about monetary

policy days, not that we are actually able to measure the surprise. Suppose that there

are T

non-announcement days and T

announcement days. Let Σ

and Σ

denote

the variance-covariance matrices of reduced form errors ε

on non-announcement and

announcement days, respectively. Clearly,

− Σ

= R

− R

= R

(σ

− σ

)

This allows R

to be identiﬁed. Without loss of generality, we adopt the normalization

that σ

− σ

= 1, as R

and σ

− σ

are not separately identiﬁed. The econometric

strategy is to estimate the VAR and construct the sample variance-covariance matrices

of residuals on non-announcement and announcement days,

and

, respectively.

Then the parameters in the vector R

can be estimated by solving the minimum

distance problem:

= arg min

[vech(

−

) − vech(R

)]

[

]

−1

[vech(

−

) − vech(R

)]

where

and

are estimates of the variance-covariance matrices of vech(

) and

vech(

). Armed with

, estimates of the impulse responses can then be traced

out.

We ﬁtted exactly the same VARs to daily data as in the previous section, with the

lag length again determined by the Bayes Information Criterion. We then applied

identiﬁcation through heteroskedasticity to measure the dynamic eﬀects of monetary

policy shocks on other asset prices, taking the measure of monetary policy as being

ten-year government bond yields in the US, UK and Japan, and the spread between

Italian and German bond yields for in euro area. For the Fed, the BOE and BOJ, we

normalize the monetary policy shock to lower ten-year government bond yields by 25

basis points; for the ECB, we normalize the monetary policy shock to lower Italian

bond yields by 25 basis points.

Table 15 reports the results of tests of the hypothesis that Σ

= Σ

(announcement

and non-announcement days are identical) and of the hypothesis that the diﬀerence

between the two variance-covariance matrices can be factored in the form R

(the

data can be well characterized by a single monetary policy shock) for all four currency

areas. Bootstrap p-values are also included. Identiﬁcation through heteroskedasticity

requires the ﬁrst hypothesis to be rejected and the second to be accepted.

For the US and euro area, the hypothesis that the announcement and non-

announcement days are identical is decisively rejected, which is of course essential

to identiﬁcation through heteroskedasticity. For the UK, the results of this test are

borderline with a p-value of 5.2 percent. For Japan, the test fails to reject, mean-

ing that the identiﬁcation is weak. Arai (2013) gives a detailed application of the

identiﬁcation-through-heteroskedasticity method to Japan, addressing the issue of

weak identiﬁcation. He ﬁnds that identiﬁcation is helped by considering a subset of

especially important monetary policy announcements.

The hypothesis of a one-dimensional monetary policy shock is not rejected for any

of the four currency areas.

For our set of announcement days, we can only be conﬁdent in identiﬁcation

through heteroskedasticity working well for the US and the euro area. We thus

report impulse responses for the US and euro area alone. These are given in Figures

6 and 7, respectively.

The conﬁdence intervals in Figures 6 and 7 are very wide. For the US (Figure 6),

the eﬀect on corporate bond yields is signiﬁcant, but only for a short time. Likewise,

for the euro area (Figure 7), the eﬀect of the monetary policy on Italian-German and

Spanish-German sovereign bond spreads is signiﬁcant, but only at short horizons,

while the shock has no signiﬁcant eﬀect on any other yields or spreads in the VAR,

at any horizon.

6 Discussion

The evidence from the last three sections points to monetary policy shocks having

substantial impacts on government bond yields which in turn pass through to other

asset prices, although to varying extents.

From the view-point of conventional asset pricing theory, the eﬀects of monetary

policy shocks on government bond yields are surprising. Models with preferred habi-

tat investors—such as Modigliani and Sutch (1966, 1967) and, more recently, Vayanos

and Vila (2009) and Greenwood and Vayanos (forthcoming)—can go some way to ex-

plain why asset purchase announcements have very material eﬀects of bond yields.

But in these preferred habitat models, and also in the empirical work of Hamilton

and Wu (2012), LSAPs are viewed as inﬂuencing yields by reducing the supply of

government bonds in the market.

A potential issue with this explanation is that there are other factors that pro-

duce large shifts in the eﬀective supply of government bonds, and in this story they

should all have comparable eﬀects on yields. One example is government bond

issuance—the rising issuance of US Treasuries coupled with the deliberate policy of

the Treasury to increase the maturity of outstanding debt has been a force of larger

magnitude than the Fed’s LSAPs and of opposite sign. If we think that LSAPs low-

ered ten-year Treasury yields by 100 basis points (Li and Wei, 2013), and we think of

all shifts in eﬀective government bond supply as equivalent, then Treasury issuance

must have raised ten-year Treasury yields by at least 200 basis points. If so, then

notwithstanding safe-haven ﬂows into Treasuries, it may seem a bit surprising that

Treasury yields have remained so low.

But it may be that central bank announcements about LSAPs have eﬀects over

and above the direct eﬀects of reducing the supply of bonds in the market. Arguably,

they are signaling that they will expand asset purchases and other programs as much

as needed to drive term premia and risk premia down, and to restore ﬁnancial stability.

If so, the credible signal is perhaps itself enough to drive yields down. The case

for this seems especially clear for Europe. One can argue that there are multiple

equilibria, as in the model of Jeanne (2012). In one equilibrium, default is likely

and sovereign bond risk premia are high, ensuring an elevated probability of default.

In the other equilibrium, default is unlikely and the risk premia are low. Central

bank purchases—or even just the credible threat of such purchases—may have been

enough to switch the euro zone from the bad to the good equilibrium. Indeed, it is

hard to ﬁnd any other explanation for the calming of concerns about the viability of

the single currency area around the time of the announcement of the OMT program

in 2012. This is especially so because OMT has been enormously eﬀective despite

not involving any actual bond purchases (to date).

When a central banks buys long-term government bonds in a bid to boost de-

mand, the pass-through of the resulting decline in government bond yields to other

asset prices is of course essential to the policy accomplishing its goal. The Fed, BOE

and BOJ did not undertake government bond purchases with the aim of lowering gov-

ernment bond yields per se. Krishnamurthy and Vissing-Jorgenson (2013) argue that

Fed purchases of Treasury had small spillover eﬀects on other asset prices. Our read-

ing of the evidence as studied by us and other researchers is that there is considerable

pass-through, and we think that Krishnamurthy and Vissing-Jorgenson substantially

understate its magnitude. That said, it stands to reason that if a central bank wants

to lower the interest rate on a particular security, the best way is to buy that par-

ticular security. For example, as noted by Krishnamurthy and Vissing-Jorgenson, if

the goal is to lower MBS rates, buying MBS will have a bigger impact than buying

government bonds. However, there are operational and legal restrictions that limit

the capacity of central banks to buy private sector assets. The Fed could not op-

erationally have doubled the size of its “QE3” MBS purchase program, nor could it

legally have bought stocks or corporate bonds, or issued its own mortgages. Uncon-

ventional monetary policy seems to be at least somewhat eﬀective in easing ﬁnancial

conditions even at the zero lower bound, but the tools of unconventional policy are

limited.

6.1 Politics and unconventional monetary policy

There are also political economy issues associated with unconventional monetary pol-

icy. Central banks can act quickly in a crisis, and can take the blame for politically

unpopular decisions away from elected politicians, but monetary policy is not always

the best way of accomplishing objectives, and in any case this strategy imperils the

independence of central banks in the long run. There are elements of this dilemma

everywhere, but especially in Europe. The ECB always had the means to quell the

euro-zone crisis by expressing willingness to buy sovereign bonds in unlimited quan-

tities. Despite some protestations to the contrary, it cannot have been impossible,

or illegal, because they ultimately did it. Front-loading this and the other actions

that the ECB ultimately took would have spared Europe the worst of the economic

downturn. But it would also have taken the pressure oﬀ politicians for reforms that

were needed, or perceived to be needed. Also, it is easier for central banks to justify

unusual measures to politicians and the public once a crisis is clearly underway than

to do so pre-emptively. Considerations of this sort surely slowed the willingness of

the ECB to implement unconventional monetary policy.

6.2 Eﬀects of Reversing Unconventional Policy

An important question going forward is the asset market eﬀects of tapering and

eventually unwinding asset purchases and other aspects of unconventional monetary

policy. Our sample involves mostly surprise easings of policy, but at some point in

the future, there will be surprise policy tightenings. The natural presumption would

be that monetary policy tightening shocks will have similar eﬀects, but of opposite

sign. The response of the markets to Chairman Bernanke’s testimony on May 22,

2013, and to the FOMC meeting on June 19, 2013, as discussed earlier, appears

broadly consistent with this presumption. But in subsection 3.6, we did ﬁnd some

hint of an asymmetry whereby the stock market reaction to a surprise monetary policy

tightening is smaller than the reaction to a surprise monetary policy easing. One

can imagine reasons why some ﬁnancial markets might potentially be more sensitive

to asset purchases than to their subsequent unwinding. Unconventional monetary

policy announcements can be interpreted as the central bank signaling that it will do

whatever it takes to ease ﬁnancial conditions. But shrinking the balance sheet in the

future is unlikely to be part of a correspondingly deliberate and open-ended attempt

to tighten ﬁnancial conditions. Still, the jury is still out on how tapering and the

eventual unwinding of unconventional monetary policy will impact ﬁnancial markets.

The four central banks are likely to unwind unconventional policy at rather dif-

ferent times, which makes the cross-country spillover eﬀects that we have estimated

especially important. For example, at the time of writing, it seems that the Federal

Reserve will seek to withdraw policy accommodation sooner than the ECB. We esti-

mate that a policy action that raises ten-year US yields by 50 basis points of raising

German ten-year yield by about 20 basis points, but also causes the euro to depreciate

relative to the dollar by roughly 2 percent (based on the estimates in Tables 6 and

7). This would imply a depreciation of the trade-weighted eﬀective value of the euro

of about 0.4 percent. The interest rate and exchange rate spillovers work in opposite

directions, but on net this scenario would strike us as representing an eﬀective tight-

ening of euro area ﬁnancial conditions. If the ECB wanted to oﬀset this spillover,

then their own monetary policy would have to become even more accommodative.

7 Conclusions

In the aftermath of the Great Recession, major central banks have driven short rates

to what is eﬀectively the zero lower bound. It is a diﬃcult situation which leaves

at least the potential for a vicious circle in which deﬂation with a zero nominal

interest rate drives real rates up, further adding to deﬂationary pressure (Williams

and Reifschneider, 2000). Moreover, nothing like this has happened on a global scale

since the Great Depression.

Alas, political constraints limit the ability of ﬁscal policy to boost demand, and

monetary policy is left as the only source of stimulus in the United States, the United

Kingdom and the euro zone. It is not a happy circumstance for central banks, yet

monetary policy is not impotent at the zero lower bound. In this paper, we have

studied the eﬀects of unconventional monetary policy on bond yields, stock prices

and exchange rates for the Fed, BOE, ECB and BOJ, using common methodologies

with daily and especially intradaily asset price data. We ﬁnd that these policies are

indeed eﬀective in easing broad ﬁnancial conditions—not just lowering government

bond yields—when policy rates are stuck at the zero lower bound. This appears to

work largely by reducing term premia, and indeed driving them negative. The ﬂipside

of this is that the recovery, when it happens, will involve a substantial increase in

long-term yields, a foretaste of which was seen in the summer of 2013.

The pass-through from bond yields into other asset prices generally seems to be

bigger for the US than for other countries. There are also important cross-country

spillovers, but they are asymmetric—the eﬀects of US monetary policy shocks on

non-US yields are larger than the other way round.

We have provided some comparison between the eﬃcacy of asset purchases and

other unconventional monetary policies. We obtained no strong and consistent result—

perhaps reﬂecting the great diﬃculty of disentangling these two. However, at least

in the US, UK and Japan, the asset purchase announcements generally seem to have

more pass-through into asset prices other than government bond yields.

We have also attempted to estimate the persistence of eﬀects of monetary policy

surprises. This is diﬃcult to identify with much precision, but our point estimates

indicate that the eﬀects wear oﬀ, although slowly. That implies that is not just the

stock of central bank purchases of securities that matters for ﬁnancial conditions, but

also the ﬂow.

Our focus in this paper has been on the eﬀects of unconventional monetary policy

on asset prices. A separate but diﬀerent research agenda is to measure the eﬀects

of unconventional monetary policy on macroeconomic outcomes (see, for example,

Giannone et al. (2011) and Lenza et al. (2010)). This latter task is perhaps more

important, but also quite hard. We directly observe asset prices at the daily and

intradaily frequency, and so can measure the eﬀects of news on these prices, as we

have done in this paper. Applying these techniques to macroeconomic outcomes

and expectations is more involved. However, the ﬁnding that the unconventional

monetary policies of the four central banks have eased broad ﬁnancial conditions

means that they surely helped somewhat with respect to both reducing the output

gap and preventing inﬂation from falling too far below target.

Table 1: Dates and Times of US Monetary Policy Announcements

Year Day Time Description

(New York)

2008 10/8 7:00 FFTR decreased to 1.5%

10/29 14:15 FFTR decreased to 1%

11/25 8:15 Fed Announces Purchases of MBS

and Agency Bonds

12/1 13:45 Bernanke states Treasuries may be purchased

12/16 14:15 FOMC Meeting: FFTR decreased to 0–0.25%

2009 1/28 - 3/18 - 4/29 - 6/24 - 8/12 - 9/23 - 11/4 - 12/16 14:15 FOMC Meeting

2010 1/27 - 3/16 - 4/28 - 6/23 - 8/10 14:15 FOMC Meeting

8/27 10:00 Bernanke Speech at Jackson Hole

9/21 14:15 FOMC Meeting

10/15 8:15 Bernanke Speech at Boston Fed

11/3 - 12/14 14:15 FOMC Meeting

2011 1/26 - 3/15 - 4/27(12:30) - 6/22(12:30) - 8/9 14:15 FOMC Meeting

8/26 10:00 Bernanke Speech at Jackson Hole

9/21 - 11/2(12:30) - 12/13 14:15 FOMC Meeting

2012 1/25(12:30) - 3/13 - 4/25(12:30) - 6/20(12:30) - 8/1 14:15 FOMC Meeting

8/31 10:00 Bernanke Speech at Jackson Hole

9/13(12:30) - 10/24 - 12/12(12:30) 14:15 FOMC Meeting

2013 1/30 - 3/20(14:00) - 5/1(14:00) 14:15 FOMC Meeting

5/22 10:00 Bernanke Testimony

6/19 14:00 FOMC Meeting

Notes: Date only is an FOMC meeting, time is 14:15 unless otherwise indicated. Entries in bold

denote the announcements that we treat as LSAP announcements; all other announcements are

treated as non-LSAP.

Table 2: Dates and Times of UK Monetary Policy Announcements

Year Day Time Description

(London)

2008 10/8 12:00 MPC meeting, bank rate decreased to 4.5%

11/6 12:00 MPC meeting, bank rate decreased to 3%

12/4 12:00 MPC meeting, bank rate decreased to 2%

2009 1/8 12:00 MPC meeting, bank rate decreased to 1.5%

1/19 12:00 The chancellor of the Exchequer

announces the BOE will set up an APF

1/29 12:00 Asset Purchase Facility announcement

2/5 12:00 MPC meeting, rate decreased to 1%

2/11 12:00 Inﬂation report and press conference

give strong indication that QE is likely

3/5 12:00 APF announcement: £75 billion of Gilts, 5-25 years;

bank rate decreased to 0.5%

4/9 12:00 MPC meeting

5/7 12:00 APF extended to £125 billion

6/4 - 7/9 12:00 MPC meeting

8/6 12:00 APF extended to £175 billion, 3+ yrs maturity

9/10 - 10/8 12:00 MPC meeting

11/5 12:00 APF extended to £200 billion

12/10 12:00 MPC meeting

2010 1/7 12:00 MPC meeting

2/4 12:00 APF will be maintained at £200 billion

3/4 4/8 5/6 6/10 7/8 8/5 9/9 10/7 11/4 12/9 12:00 MPC meeting

2011 1/13 2/10 3/10 4/7 5/5 6/9 7/7 8/4 9/8 12:00 MPC meeting

10/6 12:00 APF extended to £275 billion

11/10 12/8 12:00 MPC meeting

2012 1/12 12:00 MPC meeting

2/9 12:00 APF extended to £325 billion,

3/8 4/5 5/10 6/7 12:00 MPC meeting

7/5 12:00 APF extended to £375 billion

8/2 9/6 10/4 11/8 12/6 12:00 MPC meeting

2013 1/10 2/7 3/7 4/4 12:00 MPC meeting

5/9 12:00 MPC meeting

Notes: Entries in bold denote the announcements that we treat as APF announcements; all other

announcements are treated as non-APF.

Table 3: Dates and Times of ECB Monetary Policy Announcements

Year Day Time Description

(Frankfurt)

2007 8/2 13:45 GC meeting

8/9 12:32 Special ﬁne-tuning operations

8/22 15:33 Supplementary LTRO (announcement)

8/23 11:18 Supplementary LTRO (allotment)

9/6 10/4 11/8 12/6 13:45 GC meeting

2008 1/10 2/7 3/6 13:45 GC meeting

3/28 15:00 ECB introduces 6-m LTROs

4/10 5/8 6/5 13:45 GC meeting

7/3 13:45 GC meeting, MRO rate increased to 4.25%

8/7 9/4 13:45 GC meeting

10/8 13:00 GC meeting, MRO rate decreased to 3.75%

10/8 Fixed-rate full allotment (FRFA) on MROs

11/6 13:45 GC meeting, MRO rate decreased to 3.25%

12/4 13:45 GC meeting, MRO rate decreased to 2.50%

2009 1/15 13:45 GC meeting, MRO rate decreased to 2.00%

2/5 13:45 GC meeting

3/5 13:45 GC meeting, MRO rate decreased to 1.50%

4/2 13:45 GC meeting, MRO rate decreased to 1.25%

5/7 13:45-14:30 GC meeting, three 1yr LTROs, CBPP

6/4* 13:45-14:30 GC meeting, CBPP details announced

7/2 8/6 9/3 10/8 11/5 13:45 GC meeting

12/3 13:45-14:30 GC meeting, Phasing out of 6m LTROs, indexation of 1y LTROs

2010 1/14 13:45 GC meeting

2/4 13:45 GC meeting

3/4 13:45-14:30 GC meeting, Phasing out of 3m LTROs, indexation of 6m LTROs

4/8 5/6 13:45 GC meeting

5/9* – Securities Market Programme (SMP)

6/10 7/8 13:45 GC meeting

7/28 13:45 Collateral rules tightened, revised haircuts

8/5 9/2 10/7 11/4 12/2 13:45 GC meeting

2011 1/13 2/3 13:45 GC meeting

3/3 13:45-14:30 GC meeting, FRFA extended to July 2011

4/7 13:45 GC meeting, MRO rate increased to 1.25%

5/5 6/9 13:45 GC meeting

7/7 13:45 GC meeting, MRO rate increased to 1.50%

8/4* 13:45-14:30 GC meeting, SMP covers Spain and Italy

8/7* – SMP on Italy and Spain acknowledged by ECB

9/8 13:45 GC meeting

10/6* 13:45-14:30 GC meeting, CBPP2 launched

11/3 13:45 GC meeting, MRO rate decreased 1.25%

12/8 13:45-14:30 GC meeting: Two 3-year LTROs, reserve ratio to 1%, MRO rate to 1%

12/21 11:15 Results of ﬁrst 3-year LTRO

2012 1/12 13:45 GC meeting

2/9 13:45 GC meeting, ECB approved criteria for credit claims for 7 NCBs

2/28 11:16 Results of second 3-year LTRO

3/8 4/4 5/3 6/6 13:45 GC meeting

7/5 13:45 GC meeting, MRO rate decreased to 0.75%, deposit facility rate to 0

7/26* 11:30-12:15 “Whatever it takes” London speech

8/2* 13:45-14:30 GC meeting, Outright Monetary Transactions (OMT) program

9/6* 13:45-14:30 GC meeting, OMT details released, no ex-ante size limit

Collateral rules eased

10/4 11/8 12/6 13:45 GC meeting

2013 1/10 2/7 3/7 13:45 GC meeting

3/22 15:00 Collateral rule changes for some uncovered gov-guaranteed bank bonds

4/4 13:45 GC meeting

5/2 13:45 GC meeting: MRO rate to 0.5%, FRFA extended to July 2014

6/6 13:45 GC Meeting

Notes: Entries in bold and bold with * denote announcements that we treat as LTRO-type and

bond purchases announcements, respectively. 14:30 is the start of the ECB press conference. The

announcements on 5/9/2010 and 8/7/2011 are both on Sundays, when ﬁnancial markets were closed.

We take changes from market close to market open before/after the weekend for these dates.

Table 4: Dates and Times of Japanese Monetary Policy Announcements

Year Day Time Description

(Tokyo)

2000 1/17(15:50) 2/10(16:15) 2/24(13:20) 3/8 (15:50) Monetary policy meeting

3/24(13:25) 4/10(15:45) 4/27(13:35) 5/17(15:40) Monetary policy meeting

6/12(16:00) 6/28(13:10) 7/17(16:15) 8/11(17:30) 9/14(14:50) Monetary policy meeting

10/13(15:45) 10/30(14:40) 11/17(14:55) 11/30(12:40) 12/15(14:45) Monetary policy meeting

2001 1/19(16:20) 2/9(17:25) Monetary policy meeting

2/28(16:00) Call rate lowered to 0.15%

3/19(17:40) CAB increased to U5 tr

4/13(12:30) 4/25(13:00) 5/18(12:30) 6/15(12:25) Monetary policy meeting

6/28(12:55) 7/13(13:10) Monetary policy meeting

8/14(13:15) CAB increased to U6 tr

9/18(19:00) Call rate lowered to 0.1%

10/12(13:15) 10/29(14:10) 11/16(12:45) 11/29(12:35) Monetary policy meeting

12/19(15:05) CAB increased to U10-15 tr

2002 1/16(12:50) 2/8(12:30) Monetary policy meeting

2/28(14:05) increase LT bond purchases

3/20(13:35) 4/11(12:25) 4/30(13:10) 5/21(13:10) 6/12(12:25) Monetary policy meeting

6/26(12:55) 7/16(12:30) 8/9(12:50) 9/18(13:20) 10/11(13:00) Monetary policy meeting

10/30(14:45) CAB increased to U15-20 tr

11/19(13:05) 12/17(13:25) Monetary policy meeting

2003 1/22(12:35) 2/14(13:25) 3/5(12:45) Monetary policy meeting

3/25(11:55) CAB increased to U17-22 tr

4/8(13:30) Monetary policy meeting

4/30(13:40) 5/20(13:10) CAB increased to U22-27 and 27-30 tr

6/11(13:20) Monetary policy meeting

6/25(12:05) BoJ starts buying ABS

7/15(11:30) 8/8(11:50) 9/12(13:35) 10/10(14:05) Monetary policy meeting

10/31(12:25) 11/21(12:20) 12/16(11:30) Monetary policy meeting

2004 1/20(12:50) CAB increased to U30-35 tr

2/5(12:05) 2/26(12:10) 3/16(12:00) 4/9(12:45) Monetary policy meeting

4/28(13:05) 5/20(12:10) 6/15(11:40) 6/25(11:30) Monetary policy meeting

7/13( 12:30) 8/10(11:50) 9/9(11:40) 10/13(12:10) Monetary policy meeting

10/29(13:15) 11/18(12:10) 12/17(12:45) Monetary policy meeting

2005 1/19(12:40) 2/17(12:10) 3/16(12:50) 4/6(13:15) Monetary policy meeting

4/28(13:15) 5/20(12:55) 6/15(13:10) 7/13(13:00) Monetary policy meeting

7/27(11:45) 8/9(11:55) 9/8(12:40) 10/12(12:30) Monetary policy meeting

10/31(13:00) 11/18(12:55) 12/16(12:40) 12/27(10:00) Monetary policy meeting

2006 1/20(13:00) 2/9(12:25) 3/3(6:20) Monetary policy meeting

3/9(14:20) QEP ended

4/11(12:55) 4/28(12:50) 5/19(12:15) 6/15(12:20) Monetary policy meeting

7/14(13:40) Call rate increased to 0.25%

8/11(12:20) 9/8(12:40) 10/13(12:50) Monetary policy meeting

10/31(12:50) 11/16(12:25) 12/19(12:30) Monetary policy meeting

2007 1/18 13:05 Monetary policy meeting

2/21 14:19 Call rate increased to 0.5%

3/20(12:40) 4/10(12:48) 4/27(14:07) 5/17(12:41) Monetary policy meeting

6/15(12:18) 7/12(12:55) 8/23(12:35) 9/19(13:21) Monetary policy meeting

10/11(13:32) 10/31(12:42) 11/13 (12:29) 12/20(12:51) Monetary policy meeting

Table continued on next page.

Table 4 (continued)

Year Day Time Description

(Tokyo)

2008 1/22(12:19) 2/15(12:51) 3/7(12:52) 4/9(12:24) 4/30(13:28) Monetary policy meeting

5/20(12:04) 6/13(12:23) 7/15(13:34) 8/19(12:30) Monetary policy meeting

9/17(12:47) 10/7(12:58) 10/8(21:00) 10/14(21:38) Monetary policy meeting

10/31 13:58 Call rate lowered to 0.3%

11/21(12:34) 12/2(14:34) Monetary policy meeting

12/19 14:05 Call rate lowered to 0.1%

2009 1/22 13:43 Outright purchases (CPs, corp bonds)

2/19 13:52 Details on corporate bond purchases

3/18(12:27) 4/7(12:22) 4/30(13:37) 5/22(12:33) Monetary policy meeting

6/16(12:34 7/15(13:35) 8/11(11:51) 9/17(12:39) Monetary policy meeting

10/14(13:14) 10/30(13:05) 11/20(12:35) 12/1(15:38) 12/18(12:13) Monetary policy meeting

2010 1/26(12:26) 2/18(11:45) 3/17(12:49) 4/7(12:03) Monetary policy meeting

4/30(13:18) 5/10(12:11) Monetary policy meeting

5/21(12:42) 6/15(12:56) Call rate unchanged, Fund-Provisioning

7/15(12:45) 8/10(12:28) Monetary policy meeting

8/30 (12:11) Enhancement of easy monetary conditions

9/7 12:39 Monetary Policy Meeting

10/5 13:38 APP - U35 trillion

10/28 13:31 APP details

11/5(11:36) 12/21(12:55) Monetary policy meeting

2011 1/25(12:29) 2/15(12:37) 12:29 Monetary Policy meeting

3/14 14:48 APP extended to U40 tr

4/7(13:10) 4/28(13:31)

5/20(12:14) 6/14(12:42) 7/12(13:20) Monetary Policy meeting

8/4 14:00 APP extended to U50 tr

9/7(12:21) 10/7(12:37) 12:21 Monetary Policy meeting

10/27 13:31 APP extended to U55 tr

11/16(12:49) 11/30(22:00) 12/21(12:16) 12:49 Monetary Policy meeting

2012 1/24 12:31 Monetary Policy meeting

2/14 12:43 APP extended to U65 tr

3/13(14:07) 4/10(12:09) Monetary Policy meeting

4/27 12:46 APP extended to U70 tr

5/23(11:37) 6/15(11:52) Monetary Policy meeting

7/12 12:51 No increase in APP, shift in composition

8/9 12:19 Monetary Policy meeting

9/19 12:44 APP extended to U80 trillion

10/5 12:14 Monetary Policy meeting

10/30 14:46 APP extended to U91 tr

11/20 12:14 Monetary Policy meeting

12/20 13:01 APP extended to U101 tr

2013 1/22 12:47 APP extended to U13 tr monthly

2% inﬂation target, open-ended QE

2/14(12:39) 3/7(12:24) Monetary Policy meeting

4/4 13:40 Quantitative and Qualitative Monetary Easing

4/26(13:35) 5/22(12:07) 6/11(11:48) Monetary Policy meeting

Notes: Entries in bold denote the announcements that we treat as APP announcements; all other

announcements are treated as non-APP.

Table 5: Asset Prices Considered

Category US UK EU Japan

Intradaily Data

Bond Futures Two-year Treasury Long Gilt 10-year JGB

Five-year Treasury

Ten-year Treasury

Thirty-year Treasury

Stock Futures S&P FTSE DAX Nikkei

Currency Futures Sterling futures Euro futures Yen futures

10 Year Bond Yields Germany

Italy

Daily Data

Corporate: Higher Grade AAA Moodys 5 year AA AA 5 year A Ind.

Corporate: Lower Grade BAA Moodys 5 year BBB BBB 5 year BBB Fin.

Interest Rate Imp Vol MOVE Index

Sovereign 10 year Spain

France

Notes: All corporate bond yields and the euro area sovereign bond yields are taken from Bloomberg.

Table 6: Eﬀects of Monetary Policy Surprises on Yields/Returns: Narrow Window

Fed BOE ECB BOJ

Intradaily

Two-year Treasury -0.11

∗∗∗

(0.01) -0.01

∗∗∗

(0.00) 0.00 (0.00) 0.03 (0.04)

Five-year Treasury -0.22

∗∗∗

(0.01) -0.03

∗∗∗

(0.00) 0.00 (0.00) -0.08 (0.05)

Ten-year Treasury -0.25 -0.03

∗∗∗

(0.00) -0.01 (0.00) -0.04 (0.03)

30-year Treasury -0.16

∗∗∗

(0.01) -0.03

∗∗∗

(0.00) 0.00 (0.00) -0.02 (0.02)

UK Gilt -0.12

∗∗∗

(0.01) -0.25 0.02

∗∗∗

(0.00) -0.03 (0.02)

Italian 10 Year -0.04

∗∗∗

(0.01) -0.02

∗∗∗

(0.01) -0.20

∗∗∗

(0.00) 0.01 (0.03)

German 10 Year -0.09

∗∗∗

(0.01) -0.05

∗∗∗

(0.00) 0.05

∗∗∗

(0.00) -0.01 (0.02)

Ten-year JGB -0.05

∗∗∗

(0.01) -0.01 (0.01) 0.00 (0.01) -0.25

GBP 0.66

∗∗∗

(0.07) -0.82

∗∗∗

(0.12) 0.14

∗∗∗

(0.04) -0.13 (0.20)

EUR 0.86

∗∗∗

(0.11) -0.02 (0.07) 0.28

∗∗∗

(0.05) -0.28 (0.24)

JPY 1.21

∗∗∗

(0.09) 0.10

∗∗

(0.05) 0.09

∗∗

(0.04) -0.94

∗∗∗

(0.32)

Stock Returns 0.86

∗∗∗

(0.15) 0.23

∗

(0.12) 0.92

∗∗∗

(0.06) -0.18 (0.83)

Daily

Corp: Higher Grade -0.14

∗∗∗

(0.04) -0.14

∗∗∗

(0.04) 0.11

∗∗∗

(0.02) -0.06

∗∗

(0.03)

Corp: Lower Grade -0.14

∗∗∗

(0.04) -0.13

∗∗∗

(0.04) 0.11

∗∗∗

(0.02) -0.06 (0.04)

MOVE Index -0.02 (0.03)

Spanish 10 Year -0.37

∗∗∗

(0.04)

French 10 Year 0.01 (0.02)

Notes: Rows labeled Treasury, Gilt and JGB denote the yield changes from futures. Italian, German, French and Spanish yield changes are

from the cash market. Stock returns are S&P, FTSE, DAX and Nikkei futures for the US, UK, euro area and Japan, respectively. Exchange

rate returns are the value of futures contracts on the currency in question, relative to the US dollar, and measured as US dollars per unit of

foreign currency. The higher and lower grade corporate bond yields refer to Moody’s AAA and BAA for the US, the ﬁve-year AA and BBB

Bloomberg indices for the euro area and UK, and the ﬁve-year industrial A and ﬁnancial BBB Bloomberg indices for Japan, respectively.

All returns and yield changes are measured in percentage points (100 times log price changes for stock and exchange rate returns). Each

of the returns or yield changes is regressed on the monetary policy surprises for each of the four countries, on announcement days. The

monetary policy surprises and intradaily returns/yield changes are computed as described in the text using the narrow window. Parameters

are estimated by robust regression. Standard errors are in parentheses. One, two and three asterisks denote signiﬁcance at the 10, 5 and 1

percent signiﬁcance levels, respectively. Monetary policy surprises are scaled to represent 25 basis point reductions in the ten-year Treasury

yield, the gilt yield, the Italian-German bond spread, and the JGB yield for the US, UK, euro area and Japan, respectively. Consequently,

no standard error is provided for the eﬀect of US, UK or Japanese monetary policy surprises on the ten-year Treasury, gilt or JGB yield

changes, respectively.

Table 7: Eﬀects of Monetary Policy Surprises on Yields/Returns: Wide Window

Fed BOE ECB BOJ

Intradaily

Two-year Treasury -0.11

∗∗∗

(0.01) -0.03

∗∗∗

(0.01) 0.00 (0.01) 0.03 (0.02)

Five-year Treasury -0.23

∗∗∗

(0.01) -0.08

∗∗∗

(0.01) -0.01 (0.01) -0.03 (0.03)

Ten-year Treasury -0.25 -0.10

∗∗∗

(0.01) 0.00 (0.01) -0.02 (0.02)

30-year Treasury -0.17

∗∗∗

(0.01) -0.08

∗∗∗

(0.01) 0.00 (0.01) -0.02

∗∗

(0.01)

UK Gilt -0.10

∗∗∗

(0.01) -0.25 0.01 (0.01) -0.01 (0.02)

Italian 10 Year -0.07

∗∗∗

(0.01) -0.02 (0.01) -0.19

∗∗∗

(0.01) 0.02 (0.02)

German 10 Year -0.11

∗∗∗

(0.01) -0.07

∗∗∗

(0.01) 0.06

∗∗∗

(0.01) -0.01 (0.01)

Ten-year JGB -0.05

∗∗∗

(0.01) -0.02

∗∗∗

(0.01) 0.01

∗∗

(0.01) -0.25

GBP 1.22

∗∗∗

(0.11) -0.87

∗∗∗

(0.14) 0.27

∗∗∗

(0.06) -0.10 (0.15)

EUR 1.54

∗∗∗

(0.17) -0.42

∗∗

(0.18) 0.58

∗∗∗

(0.10) -0.08 (0.19)

JPY 1.07

∗∗∗

(0.10) 0.30

∗∗

(0.14) 0.04 (0.08) -0.11 (0.33)

Stock Returns 0.72

∗∗

(0.34) -0.55

∗∗

(0.28) 1.55

∗∗∗

(0.12) -1.86

∗∗

(0.80)

Daily

Corp: Higher Grade -0.14

∗∗∗

(0.03) -0.16

∗∗∗

(0.03) 0.07

∗∗∗

(0.01) -0.08

∗∗∗

(0.02)

Corp: Lower Grade -0.15

∗∗∗

(0.03) -0.17

∗∗∗

(0.03) 0.07

∗∗∗

(0.01) -0.09

∗∗∗

(0.02)

MOVE Index -0.12

∗∗∗

(0.02)

Spanish 10 Year -0.24

∗∗∗

(0.02)

French 10 Year 0.01 (0.01)

Notes: Rows labeled Treasury, Gilt and JGB denote the yield changes from futures. Italian, German, French and Spanish yield changes are

from the cash market. Stock returns are S&P, FTSE, DAX and Nikkei futures for the US, UK, euro area and Japan, respectively. Exchange

rate returns are the value of futures contracts on the currency in question, relative to the US dollar, and measured as US dollars per unit of

foreign currency. The higher and lower grade corporate bond yields refer to Moody’s AAA and BAA for the US, the ﬁve-year AA and BBB

Bloomberg indices for the euro area and UK, and the ﬁve-year industrial A and ﬁnancial BBB Bloomberg indices for Japan, respectively.

All returns and yield changes are measured in percentage points (100 times log price changes for stock and exchange rate returns). Each

of the returns or yield changes is regressed on the monetary policy surprises for each of the four countries, on announcement days. The

monetary policy surprises and intradaily returns/yield changes are computed as described in the text using the wide window. Parameters

are estimated by robust regression. Standard errors are in parentheses. One, two and three asterisks denote signiﬁcance at the 10, 5 and 1

percent signiﬁcance levels, respectively. Monetary policy surprises are scaled to represent 25 basis point reductions in the ten-year Treasury

yield, the gilt yield, the Italian-German bond spread, and the JGB yield for the US, UK, euro area and Japan, respectively. Consequently,

no standard error is provided for the eﬀect of US, UK or Japanese monetary policy surprises on the ten-year Treasury, gilt or JGB yield

changes, respectively.

Table 8: Eﬀects of Fed Monetary Policy Surprises on Yields/Returns: LSAP and other days

LSAP Other

Intradaily

Two-year Treasury -0.05

∗∗∗

(0.01) -0.18

∗∗∗

(0.02)

Five-year Treasury -0.21

∗∗∗

(0.01) -0.25

∗∗∗

(0.01)

Ten-year Treasury -0.25

∗∗∗

(0.00) -0.25

∗∗∗

(0.00)

30-year Treasury -0.22

∗∗∗

(0.02) -0.16

∗∗∗

(0.01)

UK Gilt -0.12

∗∗∗

(0.01) -0.13

∗∗∗

(0.02)

Italian 10 Year -0.03

∗∗∗

(0.01) -0.06

∗

(0.03)

German 10 Year -0.09

∗∗∗

(0.01) -0.06

∗∗∗

(0.01)

Ten-year JGB -0.04

∗∗∗

(0.01) -0.09

∗∗∗

(0.01)

GBP 0.67

∗∗∗

(0.14) 0.72

∗∗∗

(0.13)

EUR 0.85

∗∗∗

(0.18) 0.98

∗∗∗

(0.25)

JPY 0.68

∗∗∗

(0.16) 1.45

∗∗∗

(0.20)

Stock Returns 0.91

∗∗∗

(0.26) 0.27 (0.34)

Daily

Corp: Higher Grade -0.15

∗∗∗

(0.05) -0.09 (0.09)

Corp: Lower Grade -0.14

∗∗∗

(0.05) -0.14

∗

(0.08)

MOVE Index -0.01 (0.04) -0.10

∗

(0.06)

Notes: This table reports the same regression as in Table 6 (narrow window) for the Federal Reserve alone, except that the regression is

run separately on days when the predominant monetary policy surprise is an LSAP/other announcement, using the classiﬁcation provided in

Table 1.

Table 9: Eﬀects of BOE Monetary Policy Surprises on Yields/Returns: APF and other days

APF Other

Intradaily

Two-year Treasury -0.01

∗

(0.01) -0.02

∗∗∗

(0.01)

Five-year Treasury -0.06

∗∗∗

(0.01) -0.03

∗∗∗

(0.00)

Ten-year Treasury -0.06

∗∗∗

(0.01) -0.03

∗∗∗

(0.01)

30-year Treasury -0.03

∗∗∗

(0.01) -0.02

∗∗∗

(0.01)

UK Gilt -0.25 -0.25

Italian 10 Year -0.01 (0.02) -0.03

∗∗∗

(0.01)

German 10 Year -0.04

∗∗∗

(0.01) -0.05

∗∗∗

(0.00)

Ten-year JGB -0.02 (0.02) -0.01 (0.02)

GBP -1.49

∗∗∗

(0.24) -0.83

∗∗∗

(0.14)

EUR -0.15 (0.16) 0.00 (0.09)

JPY 0.06 (0.10) 0.13

∗∗

(0.05)

Stock Returns -0.01 (0.20) 0.29 (0.19)

Daily

Corp: Higher Grade -0.27

∗∗∗

(0.07) -0.08 (0.08)

Corp: Lower Grade -0.24

∗∗∗

(0.07) -0.08 (0.07)

Notes: This table reports the same regression as in Table 6 (narrow window) for the BOE alone, except that the regression is run separately

on days when the predominant monetary policy surprise is an APF/other announcement using the classiﬁcation provided in Table 2.

Table 10: Eﬀects of ECB Monetary Policy Surprises on Yields/Returns:

Bond purchase, LSAP and other days

Bond LTRO Other

Intradaily

Two-year Treasury 0.00 (0.01) 0.15

∗∗∗

(0.02) 0.00 (0.02)

Five-year Treasury -0.01

∗

(0.01) 0.08

∗∗∗

(0.02) 0.00 (0.02)

Ten-year Treasury -0.01 (0.01) 0.09

∗∗∗

(0.01) 0.01 (0.03)

30-year Treasury 0.00 (0.01) 0.03

∗∗∗

(0.01) 0.00 (0.02)

UK Gilt 0.01 (0.01) 0.07

∗∗∗

(0.02) 0.02 (0.03)

Italian 10 Year -0.20

∗∗∗

(0.01) -0.21

∗∗∗

(0.04) -0.16

∗∗∗

(0.01)

German 10 Year 0.05

∗∗∗

(0.01) 0.04 (0.04) 0.09

∗∗∗

(0.01)

Ten-year JGB 0.00 (0.01) 0.03 (0.05) 0.00 (0.04)

GBP 0.13 (0.08) 0.35

∗

(0.19) 0.41

∗

(0.23)

EUR 0.25 (0.17) 0.68 (0.51) 0.29 (0.26)

JPY 0.02 (0.23) -0.07 (0.81) -0.48

∗∗

(0.24)

Stock Returns 1.67

∗∗∗

(0.51) 2.46

∗∗∗

(0.52) 0.81

∗∗

(0.33)

Daily

Corp: Higher Grade 0.11

∗∗∗

(0.02) 0.17

∗

(0.10) 0.06 (0.11)

Corp: Lower Grade 0.11

∗∗∗

(0.03) 0.15

∗

(0.09) 0.08 (0.12)

Spanish 10 Year -0.39

∗∗∗

(0.07) -0.50

∗∗∗

(0.15) 0.15 (0.21)

French 10 Year 0.01 (0.02) 0.29

∗∗

(0.12) 0.11 (0.12)

Notes: This table reports the same regression as in Table 6 (narrow window) for the ECB alone, except that the regression is run separately

on days when the predominant monetary policy surprise is a bond purchase/LTRO/other announcement using the classiﬁcation provided in

Table 3.

Table 11: Eﬀects of BOJ Monetary Policy Surprises on Yields/Returns: APP and other days

APP Other

Intradaily

Two-year Treasury -0.08

∗

(0.04) 0.04 (0.04)

Five-year Treasury 0.03

∗

(0.01) -0.08 (0.06)

Ten-year Treasury 0.05

∗∗∗

(0.02) -0.04 (0.04)

30-year Treasury 0.06

∗∗∗

(0.01) -0.02 (0.02)

UK Gilt -0.14 (0.10) -0.02 (0.02)

Italian 10 Year -0.02 (0.06) 0.01 (0.03)

German 10 Year -0.09 (0.09) -0.01 (0.02)

Ten-year JGB -0.25 -0.25

GBP -0.02 (0.44) -0.14 (0.21)

EUR 0.10

∗∗

(0.57) -0.30 (0.25)

JPY -5.05

∗∗∗

(1.31) -0.67

∗∗

(0.30)

Stock Returns 7.29

∗∗

(2.89) -0.66 (0.84)

Daily

Corp: Higher Grade -0.21 (0.14) -0.05

∗

(0.03)

Corp: Lower Grade -0.24

∗

(0.13) -0.02 (0.03)

Notes: This table reports the same regression as in Table 6 (narrow window) for the BOJ alone, except that the regression is run separately

on days when the predominant monetary policy surprise is an APP/other announcement using the classiﬁcation provided in Table 4.

Table 12: Eﬀects of Fed Monetary Policy Surprises on Yields/Returns:

Eﬀects of First and Second Principal Components

MP S

Intradaily

Two-year Treasury -0.07

∗∗∗

(0.00) -0.17

∗∗∗

(0.01)

Five-year Treasury -0.18

∗∗∗

(0.00) -0.17

∗∗∗

(0.01)

Ten-year Treasury -0.24

∗∗∗

(0.00) 0.00 (0.00)

30-year Treasury -0.21

∗∗∗

(0.00) 0.19

∗∗∗

(0.00)

UK Gilt -0.12

∗∗∗

(0.01) -0.01 (0.02)

Italian 10 Year -0.04

∗∗∗

(0.01) 0.00 (0.02)

German 10 Year -0.09

∗∗∗

(0.01) 0.02

∗

(0.01)

Ten-year JGB -0.05

∗∗∗

(0.01) -0.03 (0.02)

GBP 0.67

∗∗∗

(0.08) 0.23 (0.19)

EUR 0.86

∗∗∗

(0.11) 0.35 (0.26)

JPY 1.26

∗∗∗

(0.10) -0.10 (0.23)

Stock Returns 0.83

∗∗∗

(0.16) -0.49 (0.40)

Daily

Corp: Higher Grade -0.14

∗∗∗

(0.04) 0.11 (0.09)

Corp: Lower Grade -0.14

∗∗∗

(0.04) 0.12 (0.09)

MOVE Index -0.03 (0.03) -0.22

∗∗∗

(0.06)

Notes: This table reports the results from estimating equation (2) when each of the returns or yield changes as listed in the notes to Table 6

is regressed onto the two monetary policy surprises for the Fed, on announcement days. The ﬁrst monetary policy surprise is scaled to lower

ten-year yields by 25 basis points; the second is scaled to lower two-year yields by the same amount. The monetary policy surprises and

intradaily returns/yield changes are computed using the narrow window.

Table 13: Estimates of Asymmetry: Narrow Window

Fed BOE ECB BOJ

Intradaily

Stock Returns β

-0.90 (0.82) -0.28 (0.37) 1.40

∗∗∗

(0.13) -0.72 (1.45)

1.79

∗∗

(0.83) 0.68

∗

(0.39) -0.21 (0.16) 0.81 (1.75)

GBP β

0.59

∗∗

(0.26) -0.99

∗∗∗

(0.34) 0.10 (0.07) -0.21 (0.38)

0.07 (0.27) 0.04 (0.44) 0.05 (0.09) 0.12 (0.45)

EUR β

0.67

∗∗

(0.33) 0.00 (0.10) 0.37

∗∗∗

(0.10) -0.73

∗∗∗

(0.26)

0.20 (0.34) -0.19 (0.18) -0.15 (0.12) 0.68

∗

(0.41)

JPY β

1.57

∗∗∗

(0.35) 0.15 (0.10) 0.04 (0.08) -1.24

∗∗

(0.54)

-0.89

∗∗

(0.36) -0.03 (0.13) -0.11 (0.10) 0.44 (0.68)

Daily

Corp: Higher Grade β

-0.21

∗∗

(0.08) -0.13

∗

(0.07) 0.11

∗∗∗

(0.03) 0.00 (0.07)

0.07 (0.09) -0.01 (0.09) 0.01 (0.04) -0.09 (0.08)

Corp: Lower Grade β

-0.22

∗∗∗

(0.08) -0.15

∗∗

(0.07) 0.11

∗∗∗

(0.04) -0.01 (0.08)

0.09 (0.08) -0.01 (0.09) 0.02 (0.04) -0.07 (0.09)

Notes: This table reports the results from estimating equation (3) for each of the returns or yield changes listed in the notes to Table 6. The

monetary policy surprises and intradaily returns/yield changes are computed using the narrow window.

Table 14: Eﬀects of Monetary Policy Surprises on Yields/Returns in crisis and non-crisis times

Fed BOE ECB BOJ

2008/09 Other 2008/09 Other 2008/09 Other 2008/09 Other

Intradaily

Two-year Treasury -0.15

∗∗∗

(0.02) -0.10

∗∗∗

(0.02) -0.03

∗∗∗

(0.01) 0.00 (0.01) 0.14

∗∗∗

(0.04) 0.00 (0.00) 0.05 (0.05) 0.03 (0.05)

Five-year Treasury -0.21

∗∗∗

(0.00) -0.24

∗∗∗

(0.02) -0.04

∗∗∗

(0.01) -0.03

∗∗∗

(0.01) 0.08

∗

(0.04) -0.01

∗∗∗

(0.00) -0.02 (0.02) -0.11 (0.08)

Ten-year Treasury -0.25

∗∗∗

(0.00) -0.25

∗∗∗

(0.00) -0.03

∗∗∗

(0.01) -0.04

∗∗∗

(0.01) 0.09

∗

(0.05) -0.01

∗

(0.00) -0.02 (0.01) -0.04 (0.05)

30-year Treasury -0.15

∗∗∗

(0.01) -0.17

∗∗∗

(0.02) -0.03

∗∗∗

(0.01) -0.03

∗∗∗

(0.01) 0.09

∗∗

(0.04) 0.00 (0.00) -0.01

∗∗

(0.00) -0.02 (0.02)

UK Gilt -0.14

∗∗∗

(0.02) -0.13

∗∗∗

(0.02) -0.25 -0.25 0.01 (0.04) 0.02

∗∗∗

(0.00) -0.02 (0.04) -0.03 (0.03)

Italian 10 Year

-0.08

∗∗∗

(0.01) -0.01 (0.01) -0.02

∗∗∗

(0.01) -0.01 (0.02) -0.19

∗∗∗

(0.03) -0.20

∗∗∗

(0.00) 0.01 (0.02) 0.01 (0.05)

German 10 Year -0.09

∗∗∗

(0.01) -0.08

∗∗∗

(0.01) -0.05

∗∗∗

(0.00) -0.04

∗∗∗

(0.01) 0.06

∗

(0.03) 0.05

∗∗∗

(0.00) 0.02 (0.03) -0.03 (0.02)

Ten-year JGB -0.09

∗∗∗

(0.01) -0.04

∗

(0.02) -0.02 (0.02) 0.00 (0.01) 0.05 (0.14) 0.01 (0.01) -0.25 -0.25

GBP 0.65

∗∗∗

(0.10) 1.10

∗∗∗

(0.19) -0.72

∗∗∗

(0.24) -1.28

∗∗∗

(0.21) -0.28 (0.57) 0.14

∗∗∗

(0.04) -0.04 (0.35) -0.18 (0.23)

EUR 0.84

∗∗∗

(0.17) 1.42

∗∗∗

(0.25) -0.05 (0.12) 0.06 (0.14) -0.13 (0.64) 0.43

∗∗∗

(0.05) 0.05 (0.27) -0.44 (0.28)

JPY 0.74

∗∗∗

(0.18) 1.08

∗∗∗

(0.21) 0.12 (0.09) 0.06 (0.10) -0.35 (0.77) 0.10

∗∗∗

(0.04) -0.79

∗

(0.41) -1.01

∗∗

(0.44)

Stock Returns 0.91

∗∗∗

(0.30) 0.00 (0.39) 0.34 (0.24) 0.07 (0.21) 0.86 (0.85) 0.95

∗∗∗

(0.06) 0.48 (1.37) -0.49 (0.94)

Daily

Corp: Higher Grade -0.15

∗∗∗

(0.05) -0.11 (0.09) -0.17

∗∗∗

(0.07) -0.04 (0.08) 0.29 (0.26) 0.11

∗∗∗

(0.02) -0.01 (0.25) 0.36

∗∗

(0.15)

Corp: Lower Grade -0.15

∗∗∗

(0.04) -0.10 (0.09) -0.20

∗∗∗

(0.07) 0.02 (0.07) 0.30 (0.27) 0.11

∗∗∗

(0.02) 0.00 (0.22) 0.22

∗

(0.13)

MOVE Index -0.02 (0.05) -0.07 (0.06)

Spanish 10 Year 0.28 (0.30) -0.38

∗∗∗

(0.04)

French 10 Year 0.35 (0.30) 0.01 (0.02)

Notes: This table reports the same regressions as in Table 6 (narrow window), except that the regressions are run separately for days in

2008/2009 and other years.

Table 15: Speciﬁcation Tests

Hypothesis Wald Statistic Bootstrap p-value

United States

= Σ

51.1 0.002

− Σ

= R

4.7 0.768

United Kingdom

= Σ

25.5 0.052

− Σ

= R

6.6 0.514

Euro Area

= Σ

100.6 0.000

− Σ

= R

26.9 0.526

Japan

= Σ

4.5 0.887

− Σ

= R

2.3 0.746

Notes: This table reports the results of speciﬁcation tests of the hypotheses that the

variance-covariance matrix of reduced form errors is the same on announcement and

non-announcement days, and that there is a one-dimensional structural shock that

characterizes the diﬀerence between these two sets of days. Bootstrap p-values are

included in both cases. The tests and bootstrap methodology are described in Wright

(2012).

Figure 1: Changes in Bond Yields Around Selected Announcements

0 5 10 15 20

-0.8

-0.6

-0.4

-0.2

0.2

US: March 18 2009 Announcement

Percent

0 5 10 15 20

-0.8

-0.6

-0.4

-0.2

0.2

UK: March 5 2009 Announcement

0 5 10 15 20

-0.8

-0.6

-0.4

-0.2

0.2

Japan: April 4 2013 Announcement

Year

Percent

0 5 10 15 20

-0.8

-0.6

-0.4

-0.2

0.2

US: June 19 2013 Announcement

Year

Notes: For four signiﬁcant monetary policy announcements, this ﬁgure plots the

change in the zero coupon (blue line) and instantaneous forward (red dashed line)

government bond yield curves in that country at the daily frequency from before to

after the announcement.

Figure 2: Federal Reserve Impulse Responses

0 50 100 150 200 250

-0.4

-0.3

-0.2

-0.1

0.1

Ten-Year

0 50 100 150 200 250

-0.15

-0.1

-0.05

0.05

Two-Year

0 50 100 150 200 250

-0.3

-0.25

-0.2

-0.15

-0.1

-0.05

0.05

AAA

0 50 100 150 200 250

-0.3

-0.2

-0.1

0.1

0.2

BAA

Notes: This ﬁgure plots the impulse responses (in days) of a monetary policy surprise

consisting of a 25 basis point easing of the ten-year government bond yields in the US,

identiﬁed as described in section 4. The speciﬁcation is a VAR(1) in two- and ten-

year government bond yields and corporate yields. 90 percent bootstrap conﬁdence

intervals are also shown (dashed lines).

Figure 3: BOE Impulse Responses

0 50 100 150 200 250

-0.3

-0.25

-0.2

-0.15

-0.1

-0.05

0.05

Ten-Year

0 50 100 150 200 250

-0.3

-0.2

-0.1

0.1

0.2

Two-Year

0 50 100 150 200 250

-0.3

-0.2

-0.1

0.1

0 50 100 150 200 250

-0.3

-0.2

-0.1

0.1

0.2

BBB

Notes: This ﬁgure plots the impulse responses (in days) of a monetary policy surprise

consisting of a 25 basis point easing of the ten-year government bond yields in the UK,

identiﬁed as described in section 4. The speciﬁcation is a VAR(1) in two- and ten-

year government bond yields and corporate yields. 90 percent bootstrap conﬁdence

intervals are also shown (dashed lines).

Figure 4: ECB Impulse Responses

0 50 100 150 200 250

-0.3

-0.2

-0.1

0.1

Italy 10-Year Spread

0 50 100 150 200 250

-0.4

-0.2

0.2

0.4

Spain 10-Year Spread

0 50 100 150 200 250

-0.15

-0.1

-0.05

0.05

France 10-Year Spread

0 50 100 150 200 250

-0.1

0.1

0.2

0.3

Germany 10-Year

0 50 100 150 200 250

-0.1

0.1

0.2

0.3

0 50 100 150 200 250

-0.1

0.1

0.2

0.3

BBB

Notes: This ﬁgure plots the impulse responses (in days) of a monetary policy surprise

consisting of a 25 basis point easing of Italian government bond yields in the euro

area, identiﬁed as described in section 4. The speciﬁcation is a VAR(1) in ten-year

sovereign spreads, ten-year German yields and corporate yields. 90 percent bootstrap

conﬁdence intervals are also shown (dashed lines).

Figure 5: BoJ Impulse Responses

0 50 100 150 200 250

-0.35

-0.3

-0.25

-0.2

-0.15

-0.1

-0.05

Ten-Year

0 50 100 150 200 250

-0.2

-0.15

-0.1

-0.05

0.05

Two-Year

0 50 100 150 200 250

-0.25

-0.2

-0.15

-0.1

-0.05

0.05

0.1

A Industrial

0 50 100 150 200 250

-0.5

-0.4

-0.3

-0.2

-0.1

0.1

0.2

BBB Financial

Notes: This ﬁgure plots the impulse responses (in days) of a monetary policy surprise

consisting of a 25 basis point easing of the ten-year government bond yields in Japan,

identiﬁed as described in section 4. The speciﬁcation is a VAR(1) in two- and ten-

year government bond yields and corporate yields. 90 percent bootstrap conﬁdence

intervals are also shown (dashed lines).

Figure 6: Federal Reserve Impulse Responses: Identiﬁcation Through

Heteroskedasticity

0 50 100 150 200 250

-0.5

-0.4

-0.3

-0.2

-0.1

0.1

0.2

Ten-Year

0 50 100 150 200 250

-0.15

-0.1

-0.05

0.05

0.1

0.15

0.2

Two-Year

0 50 100 150 200 250

-0.4

-0.3

-0.2

-0.1

0.1

0.2

0.3

AAA

0 50 100 150 200 250

-0.6

-0.4

-0.2

0.2

0.4

BAA

Notes: This ﬁgure plots the impulse responses (in days) of a monetary policy surprise

consisting of a 25 basis point easing of the ten-year government bond yields in the

US, using identiﬁcation through heteroskedasiticty as described in section 5. The

speciﬁcation is a VAR(1) in two- and ten-year government bond yields and corporate

yields. 90 percent bootstrap conﬁdence intervals are also shown (dashed lines).

Figure 7: ECB Impulse Responses: Identiﬁcation Through

Heteroskedasticity

0 50 100 150 200 250

-0.5

0.5

Italy 10-Year Spread

0 50 100 150 200 250

-1

-0.5

0.5

Spain 10-Year Spread

0 50 100 150 200 250

-0.3

-0.2

-0.1

0.1

France 10-Year Spread

0 50 100 150 200 250

-1

-0.5

0.5

Germany 10-Year

0 50 100 150 200 250

-1

-0.5

0.5

0 50 100 150 200 250

-2

-1

BBB

Notes: This ﬁgure plots the impulse responses (in days) of a monetary policy surprise

consisting of a 25 basis point easing of Italian government bond yields in the euro area,

identiﬁed , using identiﬁcation through heteroskedasiticty as described in section 5.

The speciﬁcation is a VAR(1) in ten-year sovereign spreads, ten-year German yields

and corporate yields. 90 percent bootstrap conﬁdence intervals are also shown (dashed

lines).

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