Research On The Impact Of The Fed's Forward-looking Guidance On China's Financial Markets

Forward guidance is one of the external communication methods of the central bank.It guides the public's expectation by conveying the information of future monetary policy tendency to the public,especially the adjustment path of policy interest rate.It is an effective supplementary means of monetary policy.As the world's largest economy,there is spillover of the USA 's behavior.It is highly likely that China's economy will be affected by the Fed's forward guidance because of the close ties between China's economy and the USA's,and Chinese financial markets will take the lead in reflecting these effects.In this paper,the event study method is used to discuss the impact of the fed's forward guidance on China's financial market,and a regression model is built to study the effect of the Fed's forward guidance,that is,the impact of the interest rate expectation on China's asset prices.The study finds that the Fed's forward guidance has the most significant influence on the short-term interest rate of China's money market.The interest rate expectations can be quantitatively decomposed into target surprise and path surprise that have a great impact on the short-term interest rate of China's money market and the long-term interest rate of the bond market,but have no significant impact on the exchange rate yield of the foreign exchange market and the yield of the stock market.In this way,the central bank and market participants can be advised to avoid losses caused by adverse effects of the fed's forward guidance.