Let's Twist Again: A High-Frequency Event-Study Analysis of Operation Twist and Its Implications for QE2

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 five significant, discrete announcements in the course of Operation Twist that potentially could have had a major effect on financial markets, and show that three did have statistically significant effects. The cumulative effect of these five announcements on longer-term Treasury yields is highly statistically significant but moderate, amounting to about 15 basis points. This [...]