Examining Spillover Effect of Us Monetary Policy to European Stock Markets: A Markov-Switching Approach

Estudios de Economía. Vol. 46 - Nº 1, Junio 2019

36 Pages Posted: 10 Jun 2019

See all articles by Muhammad Zubair Mumtaz

Muhammad Zubair Mumtaz

affiliation not provided to SSRN

Zachary Smith

Saint Leo University

Date Written: May 24, 2019

Abstract

This study empirically examines the spillover effect from US monetary policy to nineteen European economies using Markov-switching models. The results of the univariate Markov-switching models validate the presence of two distinct regimes for both US monetary policy and the stock markets. We find mixed results when applying the multivariate Markov-switching models. The results report a positive relationship between the US interest rate and developed stock markets except for the Finish, Swiss, Swedish and UK stock markets whereas our findings confirm a positive relationship with the developing stock markets except for the Slovenian and Ukraine stock markets. Importantly, the nature of this effect varies during the economic crisis period. This study also compares the spillover effect between Asian and European stock markets and concludes that the effect of US monetary policy varies from market to market, however, changes in US monetary policy have greater effects on developed markets.

Keywords: spillover effect, monetary policy, Markov-switching models, European stock markets

JEL Classification: C22, E44, E52, G15

Suggested Citation

Mumtaz, Muhammad Zubair and Smith, Zachary, Examining Spillover Effect of Us Monetary Policy to European Stock Markets: A Markov-Switching Approach (May 24, 2019). Estudios de Economía. Vol. 46 - Nº 1, Junio 2019, Available at SSRN: https://ssrn.com/abstract=3393662

Muhammad Zubair Mumtaz (Contact Author)

affiliation not provided to SSRN

Zachary Smith

Saint Leo University ( email )

1481 D Street #3016
Virginia Beach, VA 23459
United States

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