Global Asset Prices and FOMC Announcements
By Joshua K. Hausman, Jon Wongswan. 2006
262 citations recorded by the source corpus.
This paper analyzes the impact of U.S. monetary policy announcement surprises on foreign equity indexes, short- and long-term interest rates, and exchange rates in 49 countries. We use two proxies for monetary policy surprises: the surprise change to the current target federal funds rate (target surprise) and the revision to the expected path of future monetary policy (path surprise). We find that different asset classes respond to different components of the monetary policy surprises. Global equity indexes respond mainly to the target surprise; exchange rates and long-term interest rates respond mainly to the path surprise; and short-term interest rates respond to both surprises. On average, a hypothetical surprise 25-basis-point cut in the federal funds target rate is associated with about a 1 percent increase in foreign equity indexes and a 5 basis point decline in foreign short-term interest rates. A surprise 25-basis-point downward revision in the expected path of future policy is associated with about a ½ percent decline in the exchange value of the dollar against foreign currencies and 5 and 8 basis point declines in short- and long-term interest rates, respectively. We also find that asset prices' responses to FOMC announcements vary greatly across countries, and that these cross-country variations in the response are related to a country's exchange rate regime. Equity indexes and interest rates in countries with a less flexible exchange rate regime respond more to U.S. monetary policy surprises. In addition, the cross-country variation in the equity market response is strongly related to the percentage of each country's equity market capitalization owned by U.S. investors. This result suggests that investors' asset holdings may play a role in transmitting monetary policy surprises across countries.
View Paper: https://www.semanticscholar.org/paper/6901b073da3887c7761fe4576fbcb0072738c738
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- Ornella Ricci
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Citations in the corpus
- Determinants of Global Spillovers from US Monetary Policy (2015, background): “…to the literature on the spillovers from US monetary policy to global financial markets (see Craine and Martin, 2008; Ehrmann and Fratzscher, 2009; Wongswan, 2009; Neely, 2010; Hausman and Wongswan, 2011; Gurkaynak and Wright, 2011; Fratzscher et al., 2013; Moore et al., 2013; Rogers et al., 2014).”
- What Explains Global Exchange Rate Movements during the Financial Crisis (2009, background): “Hausman and Wongswan (2006), Wongswan (2006), Fratzscher (2008) and Ammer, Vega andWongswan (2009) test for the transmission of US monetary policy shocks to equity markets, though Hausman and Wongswan (2006) and Fratzscher (2008) also analyze interest rate and exchange rate responses.”
- The impact of monetary policy announcements on the stock price of large European banks during the financial crisis (2015, background): “, 2010), interest rates (Hausman and Wongswan, 2011; Leòn and Sebestyén, 2012) and exchange rates (Hausman and Wongswan, 2011).”