The Effect of Monetary Policy on Global Fixed Income Covariances

Paul Wohlfarth and Xiaohong Chen
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Xiaohong Chen: Birkbeck, University of London

No 1801, Birkbeck Working Papers in Economics and Finance from Birkbeck, Department of Economics, Mathematics & Statistics

Abstract: We analyse the effect of monetary policy on dynamic covariances on global fixed income markets, using a novel measure for monetary policy attention based on Google Search data. We filter covariances using a Dynamic Conditional Correlation model as baseline case and a BEKK model as well as a long-memory exponential smoother proposed by RiskMetrics for robustness. We find evidence for direct impact of policy on both asset variances and covariances domestically and internationally, supporting both signalling and portfolio rebalancing channels in the context of international policy transmission.

Keywords: attention; internet search; Google; monetary policy; ECB; FED; policy effects; international financial markets; macro-finance; sovereign bonds; international finance; bond markets. (search for similar items in EconPapers)
JEL-codes: C32 E44 E52 G1 G10 G15 (search for similar items in EconPapers)
Date: 2018-02
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-opm
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https://eprints.bbk.ac.uk/id/eprint/26854 First version, 2018 (application/pdf)

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