Are US Monetary Surprises Surprising? Evidence from Global Markets

29 Pages Posted: 19 Oct 2022 Last revised: 22 Oct 2022

See all articles by Andrew Kane

Andrew Kane

Fuqua School of Business, Duke University

Sergey Sarkisyan

The Wharton School, University of Pennsylvania

Tasaneeya Viratyosin

University of Pennsylvania

Date Written: October 19, 2022

Abstract

We show that FOMC announcement surprises are predicted by preceding ECB monetary policy announcement surprises. Specifically, a 1 p.p. ECB monetary policy surprise predicts a subsequent 0.25 p.p. FOMC surprise. We find little evidence that this predictability is due to the Fed using the ECB to update forecasts on the US economy or to the ECB releasing new information pertinent to near-term US macroeconomic conditions. Instead, we propose that the Fed responds to non-US economic conditions more strongly than investors expect. We find that the component of FOMC surprises predicted by ECB surprises has significant effects on the US economy. Our results suggest that the Fed’s response to non-US news is an important facet of monetary policy.

Keywords: Fed surprises, ECB surprises, monetary policy identification, international finance

JEL Classification: E43, E52, E58, F30

Suggested Citation

Kane, Andrew and Sarkisyan, Sergey and Viratyosin, Tasaneeya, Are US Monetary Surprises Surprising? Evidence from Global Markets (October 19, 2022). Available at SSRN: https://ssrn.com/abstract=4248504 or http://dx.doi.org/10.2139/ssrn.4248504

Andrew Kane (Contact Author)

Fuqua School of Business, Duke University ( email )

Durham, NC 27708-0120
United States

HOME PAGE: http://https://www.andrewbkane.com/

Sergey Sarkisyan

The Wharton School, University of Pennsylvania ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

Tasaneeya Viratyosin

University of Pennsylvania ( email )

Philadelphia, PA 19104
United States

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