Identification Through Heteroscedasticity in a Multicountry and Multimarket Framework

Bernd Hayo and Britta Niehof ()
Additional contact information
Britta Niehof: University of Marburg

No 201124, MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: This paper formally proves that Rigobon and Sack (2004)'s approach of identifying monetary policy shocks through heteroscedasticity can be extended to a multimarket and multicountry framework. Applying our multivariate framework allows deriving consistent estimators of monetary policy effects. The advantage of our extended approach is illustrated by applying it to European financial markets. We analyse monetary policy actions of the European Central Bank (ECB), the Bank of England, the Swiss National Bank, and the Swedish Riksbank on major stock indices. First, in line with the Rigobon and Sack (2004) approach, we find an increase in the variance of European stock and money market returns on days when monetary policy committee meetings are held. Second, monetary policy actions have a significant impact on financial markets. Third, we discover that ECB monetary policy moves have spillover effects on the British and Swiss financial markets, but find no evidence of reverse causality.

Keywords: Financial markets; instrumental variable estimation; identification through heteroscedasticity; spillover effects (search for similar items in EconPapers)
JEL-codes: C36 E44 E52 G15 (search for similar items in EconPapers)
Pages: 24pages
Date: 2011
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Forthcoming in

Downloads: (external link)
https://www.uni-marburg.de/en/fb02/research-groups ... ers/24-2011_hayo.pdf First version, 2011 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mar:magkse:201124

Access Statistics for this paper

More papers in MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) Contact information at EDIRC.
Bibliographic data for series maintained by Bernd Hayo ().