Does monetary policy impact international market co-movements?
Massimiliano Caporin (),
Loriana Pelizzon () and
Alberto Plazzi ()
No 276, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE
We show that FED policy announcements lead to a significant increase in international comovements in the cross-section of equity and in particular sovereign CDS markets. The relaxation of unconventionary monetary policies is felt strongly by emerging markets, and by countries that are open to the trading of goods and flows, even in the presence of floating exchange rates. It also impacts closed economies whose currencies are pegged to the dollar. This evidence is consistent with recent theories of a global financial cycle and the pricing of a FED's put. In contrast, ECB announcements hardly affect comovements, even in the Eurozone.
Keywords: Unconventional Monetary policy; Quantitative easing; Mundellian trilemma; Comovements; Sovereign credit risk (search for similar items in EconPapers)
JEL-codes: E58 G12 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec, nep-ifn, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:276
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