Does Monetary Policy Impact International Market Co-Movement?

61 Pages Posted: 29 May 2017 Last revised: 4 Sep 2020

See all articles by Massimiliano Caporin

Massimiliano Caporin

University of Padua - Department of Statistical Sciences

Loriana Pelizzon

Goethe University Frankfurt - Faculty of Economics and Business Administration; Leibniz Institute for Financial Research SAFE; Ca Foscari University of Venice - Dipartimento di Economia

Alberto Plazzi

Universita' della Svizzera italiana; Swiss Finance Institute

Multiple version iconThere are 2 versions of this paper

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

Caporin, Massimiliano and Pelizzon, Loriana and Plazzi, Alberto, Does Monetary Policy Impact International Market Co-Movement? (March 22, 2020). Paris December 2017 Finance Meeting EUROFIDAI - AFFI, Swiss Finance Institute Research Paper No. 17-47, Available at SSRN: https://ssrn.com/abstract=2976267 or http://dx.doi.org/10.2139/ssrn.2976267

Massimiliano Caporin (Contact Author)

University of Padua - Department of Statistical Sciences ( email )

Via Battisti, 241
Padova, 35121
Italy

Loriana Pelizzon

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, D-60323
Germany

Leibniz Institute for Financial Research SAFE ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

HOME PAGE: http://www.safe-frankfurt.de

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

Alberto Plazzi

Universita' della Svizzera italiana ( email )

Via Buffi 13
CH-6900 Lugano
Switzerland

HOME PAGE: http://usi.to/mpy

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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