Effects of US Federal Reserve Monetary Policies on Financial Markets and Commodity Prices: An Econometric Analysis with a Structural Break for Developed and Developing Countries

In this study, the effects of the US Federal Reserve’s (Fed) interest and quantitative easing (QE) policies on stock markets, exchange rates, and commodity prices were examined applying structural break time series analysis methods using the data of 17 countries for the January 2003–January 2021 period. The external reflections of monetary expansion in the USA, which constitutes approximately 25% of the world economy, and whose money also symbolizes an important power, is worth examining as related to the 2008 subprime financial crisis and the 2020 Covid-19 pandemic, particularly in selected countries. It was determined that Fed increases in interest rate positively affect all countries’ stock markets in the short run. Fed interest rates were observed to negatively affect the exchange rates in South Korea in the long run and in Canada, Brazil, Russia, India, South Africa, Mexico, South Korea, and Indonesia in the short run; they positively affect the UK and Japan in the short run. The Fed’s implementation of QE policy was found to positively affect stock markets in Canada and Italy in the short run and in the USA, Canada, the UK, Germany, India, China, South Africa, Mexico, South Korea, Indonesia, Malaysia, and Turkey in the long run. These results suggest that the liquidity in the market generated by Fed QE policies particularly affects the stock markets of developing countries. The effect of Fed QE policies on exchange rates was determined to be generally positive, with short run effects that are higher than the long run. In sum, Fed monetary policies generally exert extremely weak long-term effects on financial markets, the existing effects are concentrated in developing countries, and such effects differ in developed countries. From the policy perspectives, the policymakers of other countries should consider the monetary policies of the USA, which affect other countries to a great extent, and set their monetary policies to be compatible with ones of the USA. In addition, the results of this study are expected to serve as a basis for future research to determine the degrees of sensitivity to the monetary policies of the USA by grouping the developing countries according to their homogeneity in terms of fragility.