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Do Fundamentals Explain the International Impact of U.S. Interest Rates? Evidence at the Firm Level

52 Pages Posted: 16 Nov 2008  

John Ammer

U.S. Federal Reserve Board of Governors

Clara Vega

Board of Governors of the Federal Reserve System

Jon Wongswan

Phatra Securities

Multiple version iconThere are 2 versions of this paper

Date Written: October 27, 2008

Abstract

This paper analyzes the impact of U.S. monetary policy announcement surprises on U.S. and foreign firm-level equity prices. We find that U.S. monetary policy has important influences on foreign equity prices on average, but with considerable variation across firms. We have found that this differing response reflects a range of factors, including the extent of a foreign firm's exposure to U.S. demand, its dependence on external financing, the behavior of interest rates in its home country, and its sensitivity to portfolio adjustment by U.S. investors. The cross-firm variation in the response is correlated with the firm's CAPM beta; but it cannot fully explain this variation. More generally, we see these results as shedding some additional light on the nature and extent of the monetary and financial linkages between the United States and the rest of the world. In particular, since we are able to explain differences across foreign firms' responses through established theories of monetary transmission, our results are consistent with the surprisingly large average foreign response to U.S. rates reflecting fundamentals, rather than an across-the-board behavioral over-reaction.

Keywords: Monetary policy announcements, high frequency data, credit channel

JEL Classification: E44, E52, G14, G15

Suggested Citation

Ammer, John and Vega, Clara and Wongswan, Jon, Do Fundamentals Explain the International Impact of U.S. Interest Rates? Evidence at the Firm Level (October 27, 2008). FRB International Finance Discussion Paper No. 952. Available at SSRN: https://ssrn.com/abstract=1301503 or http://dx.doi.org/10.2139/ssrn.1301503

John Matthew Ammer (Contact Author)

U.S. Federal Reserve Board of Governors ( email )

20th & C Streets NW
Washington, DC 20551
United States
202-452-2349 (Phone)
202-452-6424 (Fax)

Clara Vega

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

HOME PAGE: http://www.federalreserve.gov/research/staff/vegaclarax.htm

Jon Wongswan

Phatra Securities ( email )

11F Muang Thai-Phatra Office Tower 1
252/6 Ratchadapisek Road
Bangkok, 10400
Thailand

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