Monetary Policy Uncertainty Effects Analysis
This discussion explores the impact of monetary policy uncertainty on the effectiveness of monetary policy surprises, with a focus on term premium effects and comparison to related studies. The distinction between funds rate and forward guidance policies is also highlighted, along with their interactions with monetary policy uncertainty.
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Presentation Transcript
Discussion of De Pooter, Favara, Modugno, and Wu Monetary Policy Uncertainty and Monetary Policy Surprises Eric T. Swanson University of California, Irvine Asia Economic Policy Conference Monetary Policy under Global Uncertainty November 14, 2019
Summary of Paper More uncertainty Smaller effects of monetary policy surprises
Summary of Paper Recall that uncertainty is low during the ZLB period:
Summary of Paper Uncertainty affects the term premium: Effect on term premium also supported by quantity responses of broker-dealers, futures market speculative positions
Comment 1: Similarities to Tillmann Tillmann, Peter, Monetary Policy Uncertainty and the Response of the Yield Curve to Policy Shocks , JMCB (forthcoming) Measure of monetary policy surprise is the same Also finds effects on the term premium, not expectations Differences: Tillmann s regressions are monthly Monetary policy uncertainty measured using newspaper- based index of Husted, Rogers, and Sun (2016 IFDP) Tillmann does not look at quantity effects
Comment 1: Similarities to Tillmann no uncertainty high uncertainty no uncertainty high uncertainty
Comment 2: Funds Rate vs. Forward Guidance Measure of monetary policy surprise is change in 2-year Treasury yield This aggregates changes in federal funds rate and changes in forward guidance Gurkaynak, Sack, and Swanson (2005 IJCB) and Swanson (2019 WP) distinguish between these two policies Swanson (2019 WP) also distinguishes these from LSAPs
Comment 2: Funds Rate vs. Forward Guidance 5-year Treasury yield 10-year Treasury yield federal funds rate 2.76*** 0.63*** federal funds rate monetary pol uncertainty 0.64*** 0.65*** forward guidance 6.04*** 3.04*** forward guidance monetary pol uncertainty 0.44*** 0.31*** LSAPs 2.33*** 6.34*** LSAPs monetary pol uncertainty 0.63*** 0.60*** This lack of robustness suggests that effects of uncertainty are not clear-cut; interaction with ZLB is part of the story
Comment 3: Uncertainty Affects Term Premium Consistent with Hanson-Stein (2015 JFE) Notconsistent with Fed information effect in Nakamura- Steinsson (2018 QJE) Fed tightening announcements cause private sector to revise up its forecast for economy Many other things not consistent with Fed information effect Stock market responses to FOMC announcements Survey of individual Blue Chip forecasters pre-FOMC macroeconomic announcement news reverses the Fed information effect coefficient see Bauer and Swanson (2019 WP)
