Stocks, Bonds and the US Dollar - Measuring Domestic and International Market Developments in an Emerging Market

42 Pages Posted: 7 Feb 2023

See all articles by Nicolas A. Eterovic

Nicolas A. Eterovic

Central Bank of Chile

Dalibor S. Eterovic

Columbia Business School; The Rohatyn Group

Multiple version iconThere are 2 versions of this paper

Date Written: October 2022


We propose a novel specification strategy using a SVAR identified with zero and sign-restrictions to uncover real-time financial shocks in an emerging market. By adding a foreign exogenous block and differentiating between local and US risk premia, we build on the literature that employs economically intuitive sign restrictions on the co-movement of stocks and bonds to distinguish between different types of news shocks. We then apply our methodology to Chile’s financial markets. Our main results are the following. First, for Chilean financial assets, US shocks account for approximately 12% of the volatility of both short and long rates and 25% of the volatility of the stock market. Second, the transmission of US shocks to local assets comes mainly through risk aversion shocks and pure risk premia, followed by US monetary policy shocks. Third, the introduction of an exogenous block allows to better capture the effects of central bank communication around monetary policy meetings from both the Central Bank of Chile and the Federal Reserve.

Keywords: External spillovers, high frequency shocks, stock-bond co-movement, risk Premia, central bank information effects, emerging markets

JEL Classification: G10, G11, E44

Suggested Citation

Eterovic, Nicolas A. and Eterovic, Dalibor S., Stocks, Bonds and the US Dollar - Measuring Domestic and International Market Developments in an Emerging Market (October 2022). Available at SSRN: or

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