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Federal Reserve Bank of San Francisco
Working Paper Series
Let’s twist again: a high-frequency event-study analysis of operation twist and its implications for QE2
Eric T. Swanson
Abstract

This paper undertakes a modern event-study analysis of Operation Twist and compares its effects to those that should be expected for the recent quantitative policy announced by the Federal Reserve, dubbed "QE2". We first show that Operation Twist and QE2 are similar in magnitude. We identify six significant, discrete announcements in the course of Operation Twist that potentially could have had a major effect on financial markets, and show that four did have statistically significant effects. The cumulative effect of these six announcements on longer-term Treasury yields is highly statistically significant but moderate, amounting to about 15 basis points. This estimate is consistent both with Modigliani and Sutch’s (1966) time series analysis and with the lower end of empirical estimates of Treasury supply effects in the literature.


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Eric T. Swanson, Let’s twist again: a high-frequency event-study analysis of operation twist and its implications for QE2, Federal Reserve Bank of San Francisco, Working Paper Series 2011-08, 2011.
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Keywords: Monetary policy
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