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U.S. Monetary Shocks and Global Stock Prices

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  • Luc Laeven
  • Hui Tong

Abstract

This paper studies how U.S. monetary policy affects global stock prices. We find that global stock prices respond strongly to changes in U.S. interest rate policy, with stock prices increasing (decreasing) following unexpected monetary loosening (tightening). This impact is more pronounced for sectors that depend on external financing, and for countries that are more integrated with the global financial market. These findings suggest that financial frictions play an important role in the transmission of monetary policy, and that U.S. monetary policy influences global capital allocation.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/278.

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Length: 28
Date of creation: 01 Dec 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/278

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Keywords: Monetary policy; Asset prices; financial dependence; stock prices; monetary shocks; stock market; stock price; money market; monetary shock; stock returns; futures contract; financial markets; money market rates; monetary fund; monetary transmission; transmission of monetary policy; cash flows; inflation; financial economics; local stock market; monetary economics; cash flow; financial market; domestic financial markets; stock markets; futures market; futures prices; future cash flows; stock market indexes; money market rate; stock indexes; financial conglomerates; financial sector; stock market index; cash flow from operations; interest rate policy; stock price reactions; international financial statistics; stock market declines; futures contracts; stock price reaction;

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Cited by:
  1. Tsai, Chun-Li, 2014. "The effects of monetary policy on stock returns: Financing constraints and “informative” and “uninformative” FOMC statements," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 273-290.
  2. Eijffinger, S.C.W. & Mahieu, R.J. & Raes, L.B.D., 2012. "Can the Fed talk the Hind Legs off the Stock Market? (replaces CentER DP 2011-072)," Discussion Paper 2012-012, Tilburg University, Center for Economic Research.
  3. Raes, L.B.D. & Eijffinger, S.C.W. & Mahieu, R.J., 2011. "Can the Fed Talk the Hind Legs off the Stock Market? (replaced by CentER DP 2012-012)," Discussion Paper 2011-072, Tilburg University, Center for Economic Research.

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