U.S. Monetary Shocks and Global Stock Prices

39 Pages Posted: 29 Nov 2010

See all articles by Luc Laeven

Luc Laeven

European Central Bank (ECB); Centre for Economic Policy Research (CEPR)

Hui Tong

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: November 2010

Abstract

This paper studies how U.S. monetary policy affects global stock prices. We find that global stock prices respond strongly to changes in U.S. interest rate policy, with stock prices increasing (decreasing) following unexpected monetary loosening (tightening). This impact is more pronounced for sectors that depend on external financing, and for countries that are more integrated with the global financial market. These findings suggest that financial frictions play an important role in the transmission of monetary policy, and that U.S. monetary policy influences global capital allocation.

Keywords: asset allocation, asset prices, financial constraints, monetary policy, monetary transmission

JEL Classification: E44, F36, G14, G32

Suggested Citation

Laeven, Luc A. and Tong, Hui, U.S. Monetary Shocks and Global Stock Prices (November 2010). CEPR Discussion Paper No. DP8090. Available at SSRN: https://ssrn.com/abstract=1714862

Luc A. Laeven (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Hui Tong

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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