Does Monetary Policy Impact International Market Co-Movements?

61 Pages Posted: 14 May 2020

See all articles by Massimiliano Caporin

Massimiliano Caporin

University of Padova - 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

Alberto Plazzi

Swiss Finance Institute; Universita' della Svizzera italiana

Multiple version iconThere are 2 versions of this paper

Date Written: May 11, 2020

Abstract

We show that FED policy announcements lead to a significant increase in international comovements in the cross-section of equity and in particular sovereign CDS markets. The relaxation of unconventionary monetary policies is felt strongly by emerging markets, and by countries that are open to the trading of goods and flows, even in the presence of floating exchange rates. It also impacts closed economies whose currencies are pegged to the dollar. This evidence is consistent with recent theories of a global financial cycle and the pricing of a FED’s put. In contrast, ECB announcements hardly affect comovements, even in the Eurozone.

Keywords: Unconventional Monetary policy, Quantitative easing, Mundellian trilemma, Comovements, 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-Movements? (May 11, 2020). SAFE Working Paper No. 276, Available at SSRN: https://ssrn.com/abstract=3598166 or http://dx.doi.org/10.2139/ssrn.3598166

Massimiliano Caporin

University of Padova - Department of Statistical Sciences ( email )

Via Battisti, 241
Padova, 35121
Italy

Loriana Pelizzon (Contact Author)

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 ( email )

Dorsoduro 3246
Venice, Veneto 30123
Italy

Alberto Plazzi

Swiss Finance Institute ( email )

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

Universita' della Svizzera italiana ( email )

Via Buffi 13
CH-6900 Lugano
Switzerland

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

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