Spillovers of US Conventional and Unconventional Monetary Policies to Russian Financial Markets

Abstract

This paper investigates the spillovers of US conventional and unconventional monetary policies to Russian financial markets using VAR-X models. Impulse responses to an exogenous Federal Funds rate shock are assessed for all the endogenous variables. The empirical results show that both conventional and unconventional tightening monetary policy shocks decrease stock prices whereas an easing monetary policy shock does not increase stock prices. Moreover, the results suggest that an unconventional tightening monetary policy shock increases Russian interest rates and decreases oil prices, implying reduced liquidity in international financial markets.

International Transmission of Conventional and Unconventional Monetary Policy and Financial Stress Shocks from the Euro Area to Russia

“…Russian policy rate falls in response to a contractionary ECB policy shock, implying that the policy rate channel is important. This is in line with the findings of Ono (2018) and in contrast to Takáts and Vela (2014) who find that Russian policy rate co-moves with the US monetary policy rate. The results also indicate that stock prices in Russia tumble when the policy rate in the euro area increases, corroborating the finding of Ono (2018).…”

“…This is in line with the findings of Ono (2018) and in contrast to Takáts and Vela (2014) who find that Russian policy rate co-moves with the US monetary policy rate. The results also indicate that stock prices in Russia tumble when the policy rate in the euro area increases, corroborating the finding of Ono (2018). A significant response in stock prices indicates the strength of the international wealth channel (see Bluwstein & Canova, 2016).…”

“…CPI drops by approximately 0.3% eight months from the shock. These findings corroborate the finding of Takáts and Vela (2014), Chen et al (2017), Ono (2018) and Kruglova et al (2018), that Russian real economy is susceptible to monetary policy shocks originating in large advanced economies.…”

“…They find that upon an expansionary Fed policy shock, Russia´s GDP growth and inflation rates increase, while upon the ECB´s monetary policy shock, only credit growth responds positively and significantly. Ono (2018) concentrates on Fed´s conventional and unconventional monetary policy shocks, proxied commonly by the shadow rate and assesses the impact on Russian stock prices, policy rate and bilateral exchange rate. The main finding of the study is that an increase in the shadow rate reduces Russian stock prices and interest rates and depreciates the Russian rouble.…”

Impacts of conventional and unconventional US monetary policies on global financial markets

“…The identification scheme of this paper is different from some former studies, including that of Galesi and Sgherri (2009), and Vansteenkiste and Hiebert (2011), which use generalized impulse response functions (GIRFs) introduced by Koop et al (1996) and Pesaran and Shin (1998). Although the results of GIRFs are not influenced by the ordering of variables in the model, the shocks obtained with this approach are a combination of different structural shocks, making it difficult to identify them.…”