How Do FOMC Actions and U.S. Macroeconomic Data Announcements Move Brazilian Sovereign Yield Spreads and Stock Prices?

57 Pages Posted: 23 Nov 2006

See all articles by Patrice T. Robitaille

Patrice T. Robitaille

Board of Governors of the Federal Reserve System

Jennifer E. Roush

Board of Governors of the Federal Reserve System

Date Written: 2006

Abstract

This paper provides a robust structural identification of the effects of U.S. interest rates on an emerging economy's asset values. Using newly available intraday data, we investigate how surprises associated with U.S. macro data and FOMC announcements move the yield spread on a benchmark Brazilian government dollar-denominated bond and the Brazilian broad stock price index. Our study covers the period February 1999 to April 2005. We find that FOMC announcements that lead to an increase in U.S. interest rates are associated with a systematic increase in Brazil's C-bond spread and a systematic decline in the stock price index. Several U.S. macro data surprises, including for nonfarm payrolls and the CPI, prompt an increase in the Brazilian bond yield spread and a fall in Brazilian share prices. These combined findings suggest that, for Brazil during this period, the financial risks of higher U.S. interest rates in response to positive news about the U.S. economy dominated any benefits through trade or other channels in the determination of Brazilian asset valuations.

Keywords: data releases, monetary policy, emerging markets, spreads, stock prices, Brazil

JEL Classification: F36, F39, F42

Suggested Citation

Robitaille, Patrice T. and Roush, Jennifer E., How Do FOMC Actions and U.S. Macroeconomic Data Announcements Move Brazilian Sovereign Yield Spreads and Stock Prices? (2006). FRB International Finance Discussion Paper No. 868, Available at SSRN: https://ssrn.com/abstract=946776 or http://dx.doi.org/10.2139/ssrn.946776

Patrice T. Robitaille (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-2359 (Phone)
202-736-5638 (Fax)

Jennifer E. Roush

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-2897 (Phone)
202-263-4850 (Fax)

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