U.S. Monetary Shocks and Global Stock Prices
29 Pages Posted: 1 Feb 2011
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U.S. Monetary Shocks and Global Stock Prices
U.S. Monetary Shocks and Global Stock Prices
Date Written: December 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: Corporate sector, Cross country analysis, Economic models, Interest rate policy, International capital markets, Monetary policy, Monetary transmission mechanism, Stock prices, United States
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