Forward Guidance and Large-Scale Asset Purchases Announcements

Nowadays a lot of central banks try to construct efficient communication policy. This paper has a goal to answer this question focusing especially on such tools as Forward Guidance (the information about future path of interest rate) and Large-Scale Asset Purchases Announcements. The investigation is based on USA and Japanese data, first of all, due to high implementation of these communication tools in central bank policy. There is used ARCH-approach in order to estimate the impact of set of analyzed factors on explained variables. In case of the paper we view on the influence of defined communication tools on such variables as exchange rate, interest rate and the value of government securities. Based on regression results, we can conclude that in USA Forward Guidance restrains the volatility of the most analyzed macroeconomic variables while Large-Scale Asset Purchases Announcements increase the fluctuations of exchange rate. At the same time, this tool demonstrates positive impact on other analyzed indicators. Thus, there is recommended to use both these communication tools simultaneously in order to eliminate negative effect by LSAPA to exchange rate. Regarding Japan, we can see that both FG and LSAPA positively influence volatility of all explained variables. Therefore, for this country we recommend to use these tools in different periods in order to increase the duration of their effects.