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on International Finance |
| By: | Atsushi Inoue; Barbara Rossi |
| Abstract: | What are the effects of monetary policy on exchange rates? And have unconventional monetary policies changed the way monetary policy is transmitted to international financial markets? According to conventional wisdom, expansionary monetary policy shocks in a country lead to that country's currency depreciation. We revisit the conventional wisdom during both conventional and unconventional monetary policy shocks as changes int he whole yield curve due to unanticipated monetary policy moves and allows monetary policy shocks to differ depending on how they affect agents' expectations about the future path of interest rates as well as their perceived effects on the riskiness/uncertainty in the economy. Our empirical results show that: (i) a monetary policy easing leads to a depreciation of the country's spot nominal exchange rate in both conventional and unconventional periods; (ii) however, there is substancial heterogeneity in monetary policy shocks over time and their effects depend on the way they affect agents'expectations; (iii) we find favorable evidence to Dornbusch's (1976) overshooting hypothesis; (iv) changes in expected real interest rates play an important role in the transmission of monetary policy shocks. |
| Keywords: | exchange rates, zero-lower bound, unconventional monetary policy, forward guidance |
| JEL: | F31 F37 C22 C53 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1078&r=all |
| By: | Baumöhl, Eduard; Shahzad, Syed Jawad Hussain |
| Abstract: | This paper uses the novel quantile coherency approach to examine the tail dependence network of 49 international stock markets in the frequency domain. We find that geographical proximity and state of market development are important factors in stock markets networks. Both the short- and long-run connectedness significantly increased after the global financial crisis and spillover is higher during bearish market states, highlighting the possibility of contagion effect mainly among developed markets. Frontier and emerging markets are relatively less connected. These findings have implications for international equity market diversification and risk management. |
| Keywords: | quantile coherency,networks,stock markets,extreme negative returns,financial crisis |
| JEL: | C32 C40 G01 G15 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:194568&r=all |
| By: | Potjagailo, Galina; Wolters, Maik H. |
| Abstract: | We analyze cyclical co-movement in credit, house prices, equity prices, and long-term interest rates across 17 advanced economies. Using a time-varying multi-level dynamic factor model and more than 130 years of data, we analyze the dynamics of co-movement at different levels of aggregation and compare recent developments to earlier episodes such as the early era of financial globalization from 1880 to 1913 and the Great Depression. We find that joint global dynamics across various financial quantities and prices as well as variable-specific global co-movements are important to explain fluctuations in the data. From a historical perspective, global co-movement in financial variables is not a new phenomenon, but its importance has increased for some variables since the 1980s. For equity prices, global cycles play currently a historically unprecedented role, explaining more than half of the fluctuations in the data. Global cycles in credit and housing have become much more pronounced and longer, but their importance in explaining dynamics has only increased for some economies including the US, the UK and Nordic European countries. We also include GDP in the analysis and find an increasing role for a global business cycle. |
| Keywords: | financial cycles,global co-movement,dynamic factor models,time-varying parameters,macro-finance |
| JEL: | C32 C38 E44 F44 G15 N10 N20 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkwp:2122&r=all |