Does US Monetary Policy Affect the Interconnectedness of Global Financial Markets?

Hang Zhou, Jiangze Bian, Qilin Qin and Mei Yu

Review of International Economics, 2025, vol. 33, issue 4, 988-1016

Abstract: We investigate how US monetary policy influences the interconnectedness of financial markets across 48 advanced and emerging countries. We demonstrate that both monetary policy shocks and information shocks can significantly strengthen global financial market linkages, especially during interest rate cuts. In response to these two types of shocks, advanced countries primarily generate substantial outward connections, while emerging countries exhibit stronger inward linkages, reflecting an asymmetry in their roles within the global network. Furthermore, we find that equity markets are more responsive to information shocks than bond markets, indicating that cash flow channels are more important to these transmissions. Using a central–peripheral network analysis, we highlight the central role of the US in amplifying these connections through both direct and indirect network effects, with emerging countries being more susceptible to US monetary policy shocks. Our results provide new implications for the international spillover effects of US monetary policy.

Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:bla:reviec:v:33:y:2025:i:4:p:988-1016

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