U.S. Monetary Shocks and Global Stock Prices

Author/Editor: Laeven, Luc ; Tong, Hui
Publication Date: December 01, 2010
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: This paper studies how U.S. monetary policy affects global stock prices. We find that global stock prices respond strongly to changes in U.S. interest rate policy, with stock prices increasing (decreasing) following unexpected monetary loosening (tightening). This impact is more pronounced for sectors that depend on external financing, and for countries that are more integrated with the global financial market. These findings suggest that financial frictions play an important role in the transmission of monetary policy, and that U.S. monetary policy influences global capital allocation.
Series: Working Paper No. 10/278
Subject(s): Corporate sector | Cross country analysis | Economic models | Interest rate policy | International capital markets | Monetary policy | Monetary transmission mechanism | Stock prices | United States

Author's Keyword(s): Monetary policy | asset prices | monetary transmission | financial constraints | asset allocation
Publication Date: December 01, 2010
Format: Paper
Stock No: WPIEA2010278 Pages: 28
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