Does Monetary Policy Impact International Market Co-Movements?

We show that FED policy announcements lead to a significant increase in international comovements in the cross-section of equity and in particular sovereign CDS markets. The relaxation of unconventionary monetary policies is felt strongly by emerging markets, and by countries that are open to the trading of goods and flows, even in the presence of floating ex-change rates. It also impacts closed economies whose currencies are pegged to the dollar. This evidence is consistent with recent theories of a global financial cycle and the pricing of a FED's put. In contrast, ECB announcements hardly affect comovements, even in the Eurozone.

 

Presented at:

• Financial Intermediation in Emerging Markets Conference in Cape Town (Dec 2016)

• 4th International Conference on Sovereign Bond Markets in Singapore (Apr 2017)

• 16th International Conference on Credit Risk Evaluation in Venice (Sep 2017)

• 15th Paris December Finance Meeting in Paris (Dec 2017)

• 2nd Annual CEBRA International Finance and Macroeconomics Meeting in Madrid (Nov 2018)

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