FOMC Forward Guidance and Investor Beliefs
American Economic Review
vol. 105,
no. 5, May 2015
(pp. 656-61)
Abstract
This paper considers the effect of different dimensions of the FOMC's forward guidance on ex ante investor expectations about future changes in US Treasury yields. Options and Futures data for 2- and 10-year Treasuries is used to extract State-Price Densities of investor beliefs, and the corresponding standard deviation, skewness, and excess kurtosis of these densities are computed. Announcements about extension of the zero-lower bound in 2012-13 are found to reduce the expectations about crash risk, but increase the uncertainty about future yields for the 10-year. Policies about long-security purchases lead investors to place greater weight on no change in future yields.Citation
Sinha, Arunima. 2015. "FOMC Forward Guidance and Investor Beliefs." American Economic Review, 105 (5): 656-61. DOI: 10.1257/aer.p20151123Additional Materials
JEL Classification
- D14 Household Saving; Personal Finance
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- E43 Interest Rates: Determination, Term Structure, and Effects
- E52 Monetary Policy
- E58 Central Banks and Their Policies