U.S. Monetary Shocks and Global Stock Prices
IMF Working Papers, December 1, 2010
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- U.S. Monetary Shocks and Global Stock Prices
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Bibliographic details
- Authors: Luc Laeven, Hui Tong
- Published: December 1, 2010
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781455210855.001
Summary and main finding
- 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).
- 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.
Heterogeneity and channels
- Impact is more pronounced for sectors that depend on external financing.
- Impact is more pronounced for countries that are more integrated with the global financial market.
- These patterns imply a role for financial frictions in the cross-border transmission of U.S. monetary policy.
Policy implications
- U.S. monetary policy has significant spillovers to global stock prices and capital allocation.
- Consideration of sectoral dependence on external financing and country financial integration is important when assessing vulnerability to U.S. monetary shocks.
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- _wp10278 — References