The International Spillover Effects of US Monetary Policy Uncertainty

63 Pages Posted: 15 May 2020

See all articles by Aeimit Lakdawala

Aeimit Lakdawala

Wake Forest University - Department of Economics

Timothy Moreland

Michigan State University - Department of Economics

Matthew Schaffer

University of North Carolina (UNC) at Greensboro - Department of Economics

Date Written: April 20, 2020

Abstract

An extensive literature studies the international transmission of US monetary policy surprises (shifts in expected path of the policy rate). In this paper we show that changes in uncertainty around the expected path constitute an important additional dimension of spillover effects to global bond yields. In advanced countries, it is the term premium component of yields that responds to uncertainty. We find that this can be explained by an international portfolio balance mechanism. In contrast, for emerging countries it is the expected component of yields that reacts to uncertainty. This can be rationalized from a flight to safety channel. We find heterogeneity in the country-level response to uncertainty only in emerging economies and it is driven by the degree of financial openness. Finally, equity markets in both advanced and emerging countries also respond to US monetary policy uncertainty, but only since the financial crisis.

Keywords: monetary policy uncertainty, international spillover, international portfolio balance, flight to safety

JEL Classification: E43, E58, G12, G15

Suggested Citation

Lakdawala, Aeimit and Moreland, Timothy and Schaffer, Matthew, The International Spillover Effects of US Monetary Policy Uncertainty (April 20, 2020). Available at SSRN: https://ssrn.com/abstract=3580933 or http://dx.doi.org/10.2139/ssrn.3580933

Aeimit Lakdawala

Wake Forest University - Department of Economics ( email )

Winston Salem, NC
United States

HOME PAGE: http://aeimit.weebly.com

Timothy Moreland

Michigan State University - Department of Economics ( email )

East Lansing, MI 48824
United States

HOME PAGE: http://timothymoreland.com

Matthew Schaffer (Contact Author)

University of North Carolina (UNC) at Greensboro - Department of Economics ( email )

P.O. Box 26170
Greensboro, NC 27402-6165
United States

HOME PAGE: http://matthewschaffer.weebly.com/

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
61
Abstract Views
263
rank
400,462
PlumX Metrics