Are US Monetary Surprises Surprising? Evidence from Global Markets
50 Pages Posted: 19 Oct 2022 Last revised: 16 Mar 2023
Date Written: March 15, 2023
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: Suggested Citation