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Financial Crisis and the Global Transmission of U.S. Monetary Policy Surprises

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  • Kim, Kyoung-Gon

Abstract

I identify how the Fedʼs dependence on unconventional monetary policy after the 2007-2008 financial crisis and its return to conventional policy in 2015 have affected the global influence of U.S. monetary policy. I divide the sample into three phases according to the Fedʼs monetary policy regimes: pre-crisis (Aug 2001-Nov 2008), crisis (Nov 2008-Dec 2015), and post-crisis (Dec 2015-Sep 2017). Daily variations in government bond yields and foreign exchange spot rates for 46 countries on FOMC meeting days show that the influence of U.S. monetary policy surprises intensified after the financial crisis. Responses are stronger in a group of emerging markets than in developed economies. I also find that more flexible exchange rate regimes lead to larger magnitudes of responses to U.S. monetary policy surprises. My results show that the decoupling of interest rates between the U.S. and other countries forced foreign financial markets to respond sensitively to U.S. monetary policy surprises after the financial crisis.

Suggested Citation

  • Kim, Kyoung-Gon, 2022. "Financial Crisis and the Global Transmission of U.S. Monetary Policy Surprises," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 63(2), pages 104-125, December.
    • Handle: RePEc:hit:hitjec:v:63:y:2022:i:2:p:104-125
    DOI: 10.15057/hje.2022006
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    More about this item

    Keywords

    financial crisis; monetary policy; interest rates; exchange rate;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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