Stocks, Bonds and the Us Dollar: Measuring Domestic and International Market Developments in an Emerging Market
37 Pages Posted: 27 Jan 2023
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Stocks, Bonds and the US Dollar - Measuring Domestic and International Market Developments in an Emerging Market
We propose a novel specification strategy using a SVAR identified with zero and sign-restrictions to uncover real-time financial shocks in Chilean markets. We build on the literature that employs economically intuitive sign restrictions on the comovement of stocks and bonds to distinguish between different types of news shocks. Our main results are the following. First, US shocks account for approximately 12% of the volatility of both short and long local rates and 25% of the volatility of the stock market. Second, the transmission of US shocks comes mainly through risk aversion shocks and pure risk premia.
Keywords: External spillovers, high frequency shocks, stock-bond comovement, risk Premia, central bank information effects, emerging markets.
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