A comprehensive look on the global spillovers of US monetary policy – The role of the ‘FED information effect’ and uncertainty

Absztrakt (kivonat)

Recent advancements in the literature on international monetary policy spillovers have emphasized the role of central bank information effects and monetary policy uncertainty in driving global asset prices around FOMC announcements. This study conducts a comprehensive analysis of global spillover effects using a wide and long panel of FOMC announcements and asset price responses. We find that the level of monetary policy uncertainty determines how policy shocks spill over on a global scale, especially in advanced countries and through term premia. We show that the Fed information effect is a prominent factor in global spillovers. An interest rate hike associated with the Fed’s optimism about economic fundamentals has expansionary effects on global risk-taking and equity prices, and an information-type hike does not translate into higher long-term bond yields in emerging economies. We find that countries with more financial depth are associated with larger information spillovers to long-term yields, and larger spillovers are present in countries with fixed exchange rate regimes. Our study calls attention to the importance of controlling for information effects and uncertainty in event-study regressions to achieve a better understanding of why international spillovers occur.