Are US Monetary Surprises Surprising? Evidence from Global Markets

50 Pages Posted: 19 Oct 2022 Last revised: 16 Mar 2023

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: March 15, 2023

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. Increases in stock (bond) prices around the ECB meeting also predict decreases (increases) around subsequent FOMC meetings. We rationalize these empirical facts with a model in which 1) the Fed responds to non-US economic conditions more strongly than investors expect and 2) the ECB releases growth news at the time of its announcements. 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 (March 15, 2023). Jacobs Levy Equity Management Center for Quantitative Financial Research Paper, 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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