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Stock market evidence on the international transmission channels of US monetary policy surprises

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  • Tim D. Maurer
  • Thomas Nitschka

Abstract

We decompose unexpected movements in the stock market returns of 40 countries into different news components to assess why expansionary US monetary policy surprises are good news for stock markets. Our results suggest that prior to the zero lower bound (ZLB) period, federal funds rate surprises affect foreign stock markets mainly because such surprises are associated with news about future real interest rates. The effects of forward guidance surprises are negligible. At the ZLB, large-scale asset purchases (LSAP) reflect more than commitment to forward guidance. LSAP surprises constitute cash-flow news, while unanticipated forward guidance primarily reflects real interest rate news.

Suggested Citation

  • Tim D. Maurer & Thomas Nitschka, 2020. "Stock market evidence on the international transmission channels of US monetary policy surprises," Working Papers 2020-10, Swiss National Bank.
  • Handle: RePEc:snb:snbwpa:2020-10
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    References listed on IDEAS

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    More about this item

    Keywords

    International spillovers; news; monetary policy; stock returns; vector autoregression;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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