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International spillovers from US forward guidance to equity markets

Listed author(s):
  • Richhild Moessner

We quantify the international spillovers of explicit FOMC policy rate guidance used as an unconventional monetary policy tool at the zero lower bound of the policy rate on international equity markets, considering equity indices of both advanced and emerging economies. We find that explicit FOMC policy rate guidance announcements at the zero lower bound led to higher equity prices in a number of advanced and emerging economies. Moreover, we find that equity indices of economies with lower sovereign ratings rose by more, consistent with the risk-taking channel of monetary policy.

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Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 427.

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Date of creation: Jul 2014
Handle: RePEc:dnb:dnbwpp:427
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  1. Ben S. Bernanke & Kenneth N. Kuttner, 2005. "What Explains the Stock Market's Reaction to Federal Reserve Policy?," Journal of Finance, American Finance Association, vol. 60(3), pages 1221-1257, 06.
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  8. Bruno, Valentina & Shin, Hyun Song, 2015. "Capital flows and the risk-taking channel of monetary policy," Journal of Monetary Economics, Elsevier, vol. 71(C), pages 119-132.
  9. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 910-945, December.
  10. Hausman, Joshua & Wongswan, Jon, 2011. "Global asset prices and FOMC announcements," Journal of International Money and Finance, Elsevier, vol. 30(3), pages 547-571, April.
  11. Bauer, Michael D. & Neely, Christopher J., 2014. "International channels of the Fed's unconventional monetary policy," Journal of International Money and Finance, Elsevier, vol. 44(C), pages 24-46.
  12. Qianying Chen & Andrew Filardo & Dong He & Feng Zhu, 2012. "International spillovers of central bank balance sheet policies," BIS Papers chapters,in: Bank for International Settlements (ed.), Are central bank balance sheets in Asia too large?, volume 66, pages 220-264 Bank for International Settlements.
  13. Rigobon, Roberto & Sack, Brian, 2004. "The impact of monetary policy on asset prices," Journal of Monetary Economics, Elsevier, vol. 51(8), pages 1553-1575, November.
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  22. Richhild Moessner, 2013. "Effects of explicit FOMC policy rate guidance on market interest rates," DNB Working Papers 384, Netherlands Central Bank, Research Department.
  23. repec:pri:cepsud:161blinder is not listed on IDEAS
  24. Michael Woodford, 2012. "Methods of policy accommodation at the interest-rate lower bound," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 185-288.
  25. Moessner, Richhild, 2013. "Effects of explicit FOMC policy rate guidance on interest rate expectations," Economics Letters, Elsevier, vol. 121(2), pages 170-173.
  26. Jeffrey Moore & Sunwoo Nam & Myeongguk Suh & Alexander Tepper, 2013. "Estimating the impacts of U.S. LSAPs on emerging market economies’ local currency bond markets," Staff Reports 595, Federal Reserve Bank of New York.
  27. Raghuram G. Rajan, 2006. "Has Finance Made the World Riskier?," European Financial Management, European Financial Management Association, vol. 12(4), pages 499-533.
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