International Transmission of US Monetary Policy Shocks: Are Bond and Stock Markets Different?

32 Pages Posted: 7 Sep 2019

Date Written: August 19, 2019

Abstract

Using local projection and event studies, I investigate the non-linear effects of US monetary policy shocks on financial asset prices in five advanced economies–Australia, Canada, New Zealand, South Korea, and the United Kingdom–from 1990 to 2014. The international asset prices show evidence of asymmetric or state-dependent propagation of US monetary shocks. Moreover, the results indicate that the nature of non-linearity in the shock propagation is distinctive across two asset classes, bond yields and equity prices. Contractionary US monetary policy shocks are quite influential in sovereign bond markets, while their impacts are largely insignificant in stock markets, and vice versa for expansionary monetary policy shocks. These results are quite stylized across the open economies and may imply that US monetary announcements and subsequent reactions of international risk premiums can play a critical role in international shock propagation.

Keywords: monetary policy transmission, non-linearity, local projection method, open economy, equity price, bond yields

JEL Classification: G15, F36, E44, E52

Suggested Citation

Ha, Jongrim, International Transmission of US Monetary Policy Shocks: Are Bond and Stock Markets Different? (August 19, 2019). Available at SSRN: https://ssrn.com/abstract=3446875 or http://dx.doi.org/10.2139/ssrn.3446875

Jongrim Ha (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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