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The Effect of Monetary Policy on Global Fixed Income Covariances

Author

Listed:
  • Paul Wohlfarth

    (Birkbeck, University of London)

  • Xiaohong Chen

    (Birkbeck, University of London)

Abstract

We analyse the effect of monetary policy on dynamic covariances on global fixed income markets, using a novel measure for monetary policy attention based on Google Search data. We filter covariances using a Dynamic Conditional Correlation model as baseline case and a BEKK model as well as a long-memory exponential smoother proposed by RiskMetrics for robustness. We find evidence for direct impact of policy on both asset variances and covariances domestically and internationally, supporting both signalling and portfolio rebalancing channels in the context of international policy transmission.

Suggested Citation

  • Paul Wohlfarth & Xiaohong Chen, 2018. "The Effect of Monetary Policy on Global Fixed Income Covariances," Birkbeck Working Papers in Economics and Finance 1801, Birkbeck, Department of Economics, Mathematics & Statistics.
    • Handle: RePEc:bbk:bbkefp:1801
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    File URL: https://eprints.bbk.ac.uk/id/eprint/26854
    File Function: First version, 2018
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    More about this item

    Keywords

    attention; internet search; Google; monetary policy; ECB; FED; policy effects; international financial markets; macro-finance; sovereign bonds; international finance; bond markets.;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G1 - Financial Economics - - General Financial Markets
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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