Does Monetary Policy Impact International Market Co-Movement?
61 Pages Posted: 29 May 2017 Last revised: 4 Sep 2020
There are 2 versions of this paper
Does Monetary Policy Impact International Market Co-Movement?
Does Monetary Policy Impact Sovereign Credit Risk Comovement?
Date Written: March 22, 2020
Abstract
This paper shows that FED policy announcements lead to a significant increase in international co-movement in the cross-section of equity and particularly sovereign CDS market. The effect is strongest for emerging markets, when the FED relaxes unconventionary monetary policies, and for countries that are open to the trading of goods and flows, even with floating exchange rates. The announcements also affect closed economies whose currencies are pegged to the dollar. The evidence is consistent with recent theories of a global financial cycle and the pricing of a FED put. In contrast, ECB announcements hardly affect co-movement, even in the Eurozone.
Keywords: Unconventional Monetary policy, Quantitative easing, Mundellian trilemma, Comovement, Sovereign credit risk
JEL Classification: E58, G12, G15
Suggested Citation: Suggested Citation