International Transmission of U.S. Monetary Policy Surprises

41 Pages Posted: 27 Aug 2016 Last revised: 13 Mar 2017

See all articles by Kyunghun Kim

Kyunghun Kim

Korea Institute for International Economic Policy

Date Written: July 29, 2016

Abstract

This paper examines the international transmission of the US monetary policy surprises. The US monetary policy surprises are defined by the gap between the actual fed fund rate and its forecast estimated a quarter ahead. The US monetary policy surprises are used as external shocks to investigate the spillover effects of policy uncertainty on other economies and address the endogeneity problem. The US is the base country where the monetary policy uncertainty shocks take place. I construct the each country’s international linkages such as the equity market and debt market linkages vis-à-vis the epicenter, US to investigate how the shocks are transmitted to other countries through those linkages. The empirical result shows that the equity market integration is associated with the business cycle divergence and the debt market integration is associated with the business cycle co-movement when the US policy uncertainty index is low. However, the equity market integration is associated with the business cycle comovement and the debt market integration plays insignificant role in transmitting the monetary policy surprises when the US policy uncertainty index is high.

Keywords: Business Cycle Co-Movement, Spillover, Monetary Policy, Global Financial Market, Capital Control

JEL Classification: E52, F33, F42, F44

Suggested Citation

KIim, Kyunghun, International Transmission of U.S. Monetary Policy Surprises (July 29, 2016). KIEP Research Paper, Working Papers 16-05, Available at SSRN: https://ssrn.com/abstract=2830292 or http://dx.doi.org/10.2139/ssrn.2830292

Kyunghun KIim (Contact Author)

Korea Institute for International Economic Policy ( email )

[30147] Building C, Sejong National Research Compl
Seoul, 370
Korea, Republic of (South Korea)

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