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Global Financial Transmission of Monetary Policy Shocks

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Author Info
Michael Ehrmann
Marcel Fratzscher

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Abstract

The paper analyses the transmission of US monetary policy shocks to global equity markets and the macroeconomic determinants of the underlying transmission process. We show that there is a substantial cross-country heterogeneity in reactions across 50 equity markets worldwide, with returns falling on average around 2.7% in response to a 100 basis point tightening of US monetary policy, but ranging from a zero response in some to a reaction of 5% or more in other markets. As to the determinants of the strength of transmission to individual countries, we test the relevance of their macroeconomic policies and the role of real and financial integration. We find that in particular the degree of global integration of countries - and not a country's bilateral integration with the United States - is a key determinant for the transmission process. Copyright (c) Blackwell Publishing Ltd and the Department of Economics, University of Oxford, 2009.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0084.2009.00561.x
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Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics and Statistics.

Volume (Year): 71 (2009)
Issue (Month): 6 (December)
Pages: 739-759
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Handle: RePEc:bla:obuest:v:71:y:2009:i:6:p:739-759

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  1. Massimo Guidolin & Stuart Hyde, 2008. "Equity portfolio diversification under time-varying predictability and comovements: evidence from Ireland, the US, and the UK," Working Papers 2008-005, Federal Reserve Bank of St. Louis. [Downloadable!]
  2. Joshua Hausman & Jon Wongswan, 2006. "Global asset prices and FOMC announcements," International Finance Discussion Papers 886, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  3. Ernst Konrad, 2009. "The impact of monetary policy surprises on asset return volatility: the case of Germany," Financial Markets and Portfolio Management, Springer, vol. 23(2), pages 111-135, June. [Downloadable!] (restricted)
  4. Rasmus Rüffer & Livio Stracca, 2006. "What is global excess liquidity, and does it matter?," Working Paper Series 696, European Central Bank. [Downloadable!]
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  5. Claudio Morana, 2006. "International Stock Markets Comovements: the Role of Economic and Financial Integration," ICER Working Papers 25-2006, ICER - International Centre for Economic Research. [Downloadable!]
  6. Joao Sousa & Andrea Zaghini, 2008. "Monetary policy shocks in the euro area and global liquidity spillovers," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(3), pages 205-218. [Downloadable!]
    Other versions:
  7. Marco Cipriani & Graciela Kaminsky, 2007. "Volatility in International Financial Market Issuance: The Role of the Financial Center," Open Economies Review, Springer, vol. 18(2), pages 157-176, April. [Downloadable!] (restricted)
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  8. Claudio Morana, 2008. "International stock markets comovements: the role of economic and financial integration," Empirical Economics, Springer, vol. 35(2), pages 333-359, September. [Downloadable!] (restricted)
  9. Bernd Hayo & Ali M. Kutan & Matthias Neuenkirch, 2009. "FOMC Communication and Emerging Equity Markets," MAGKS Papers on Economics 200923, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung). [Downloadable!]
  10. Marcel Fratzscher, 2007. "US shocks and global exchange rate configurations," Working Paper Series 835, European Central Bank. [Downloadable!]
    Other versions:
  11. Lucia Cuadro Sáez & Marcel Fratzscher & Christian Thimann, 2007. "The transmission of emerging market shocks to global equity markets," Working Paper Series 724, European Central Bank. [Downloadable!]
    Other versions:
  12. Paolo Vitale, 2006. "A market microstructure analysis of foreign exchange intervention," Working Paper Series 629, European Central Bank. [Downloadable!]
    Other versions:
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