The Global Effects of U.S. Monetary Policy on Equity and Bond Markets: A Spatial Panel Data Model Approach

52 Pages Posted: 13 Jan 2020

See all articles by Lina Lu

Lina Lu

Federal Reserve Banks - Federal Reserve Bank of Boston

Shaowen Luo

Virginia Polytechnic Institute & State University - Department of Economics

Date Written: December 1, 2019

Abstract

We use spatial panel data model analysis to study the international transmission of U.S. monetary policy shocks in the global equity and bond markets. Through this analysis, we decompose the overall effect of such a shock into 1) direct effects, 2) higher-order network effects transmitted through global economic networks, and 3) simultaneous effects transmitted between local equity and bond markets. Theoretically, our analysis of the transmission mechanism for the shocks relies on a network model with monetary policy spillovers. Empirically, we study asset price responses around the scheduled Federal Reserve announcements to demonstrate the significant roles of all three effects in the transmission of shocks.

Keywords: monetary policy shocks, international spillover of shocks, spatial panel data model, global network

JEL Classification: C31, C33, E44, E52, F42, G12

Suggested Citation

Lu, Lina and Luo, Shaowen, The Global Effects of U.S. Monetary Policy on Equity and Bond Markets: A Spatial Panel Data Model Approach (December 1, 2019). Available at SSRN: https://ssrn.com/abstract=3508958 or http://dx.doi.org/10.2139/ssrn.3508958

Lina Lu

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

Shaowen Luo (Contact Author)

Virginia Polytechnic Institute & State University - Department of Economics ( email )

3021 Pamplin Hall
Blacksburg, VA 24061
United States

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