Unforeseen Events Wait Lurking: Estimating Policy Spillovers From U.S. to Foreign Asset Prices
IMF Working Papers, August 1, 2011
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Bibliographic details
- Authors: Tamim Bayoumi, Trung T Bui
- Published: August 1, 2011
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781462309290.001
Overview and methodology
- Authors: Tamim Bayoumi, Trung T Bui.
- Date: August 1, 2011.
- Method: Event studies analyzing impacts of U.S. financial, fiscal, and monetary policy announcements on foreign asset prices across a range of G20 countries and Switzerland.
- Publication: IMF Working Papers, Working Paper No. 2011/183, Issue: 183, Volume: 2011, Pages: 45.
- DOI: https://doi.org/10.5089/9781462309290.001
- Stock No: WPIEA2011183; ISBN: 9781462309290; ISSN: 1018-5941.
Key empirical findings
- Financial regulation announcements
- The initial announcement that the Administration supported tighter regulation of banks led to a generalized fall in advanced economy bank shares compared to local equity markets.
- For later Dodd-Frank announcements, falls in U.S. bank equity prices were accompanied by increases in U.K. and Swiss valuations, implying a potential for regulatory arbitrage.
- Macro policy announcements
- The 2008/9 fiscal and monetary stimulus packages generally supported foreign activity.
- The impact of similar stimulus in 2010 is less clear.
- Asset classes and markets studied
- Subject coverage includes: Asset prices, Banking, Bond yields, Emerging and frontier financial markets, Financial institutions, Financial markets, Monetary policy, Prices, Stocks, Unconventional monetary policies.
- Keywords referenced in the study include: bank excess return, bond yields, equity price, equity return, event studies, excess return, fed funds rate, interntational asset price transmission, market condition, treasury yield, yield, yields matter.
Interpretations and implications
- Regulatory spillovers: Tighter U.S. bank regulation can depress U.S. bank shares and, depending on timing and specific announcements, produce offsetting valuation gains in other advanced financial centers (example: U.K. and Switzerland), signaling potential channels for regulatory arbitrage.
- Policy transmission: Large-scale U.S. fiscal and monetary stimulus (2008/9) had positive spillovers supporting foreign activity, but subsequent stimulus episodes (2010) produced less clear effects, pointing to context-dependent transmission mechanisms.
- Market sensitivity: Financial markets across advanced economies and selected emerging markets react heterogeneously to U.S. policy announcements, with bank equities particularly sensitive to regulatory news.
Research note
- Disclaimer included in the source: This Working Paper should not be reported as representing the views of the IMF. The views expressed are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress and are published to elicit comments and to further debate.
IMF Working Paper — Unforeseen Events Wait Lurking: Estimating Policy Spillovers From U.S. to Foreign Asset Prices (Working Paper No. 2011/183, August 1, 2011).