Financial market spillovers of U.S. monetary policy shocks

Abstract

This paper investigates the cross-border propagation of U.S. monetary policy shocks to the financial markets of five open countries-

Navigating Uncharted Waters: The Transformation of the Bank of Korea’s Monetary Policy in Response to Global Economic Uncertainty

“…Unlike traditional approaches that often isolate these shocks, our model concurrently explores their interplay and reciprocal effects on macroeconomic stability. This provides a more comprehensive understanding of how such shocks impact small open economies like South Korea, refining insights provided by Ha [7], Lee and Park [8], and Shareef and Prabheesh [9]. Second, by employing Bayesian estimation techniques, this study not only validates the robustness of theoretical models with empirical data but also enhances the precision of parameter estimation.…”

“…In Equation (7), TD refers to the total balance of debts within the tradable sector. D denotes the net profit earned by this sector.…”

The Impact of Unconventional Monetary Policy on China’s Economic and Financial Cycle: Application of a Structural Vector Autoregression Model Based on High-Frequency Data

“…For the multiple targets of China's monetary policy framework described in [23], we could not choose a single domestic interest rate as the monetary policy indicator, so, according to [24], the growth rate of M2 was set as the Chinese monetary policy indicator. The CBOE volatility index (VIX) is a real-time index that represents the market's expectation of the relative strength of near-time price changes in the S&P 500 index, so the VIX was set as the exogenous variable, making the model a VARX model [25]. Based on the results of the Akaike information criterion (AIC), Bayesian information criterion (BIC), and Hannan-Quinn (HQ) information criterion, we used a VARX model with three lags.…”

Carry trades and US monetary policy

“…To proxy for changes in monetary conditions, Fed monetary policy is considered. Given the role of the US dollar as the main currency of global banking, monetary actions in the US induce significant variations in asset prices worldwide through their impact on funding costs, risk aversion, leverage decisions, and cross-border capital flows of international banks (see, e.g., Miranda-Agrippino & Rey, 2020;Ha, 2021). Following Nakamura and Steinsson (2018), who build on Gurkaynak et al (2005), monetary policy shocks are measured by a composite indicator of changes in Fed funds and Eurodollar futures with horizons up to one year over a 30-minute window around Federal Open Market Committee (FOMC) announcements.…”

“…To proxy for changes in monetary conditions, Fed monetary policy is considered. Given the role of the US dollar as the main currency of global banking, monetary actions in the US induce significant variations in asset prices worldwide through their impact on funding costs, risk aversion, leverage decisions, and cross‐border capital flows of international banks (see, e.g., Miranda‐Agrippino & Rey, 2020; Ha, 2021).…”