The Global Effects of U.S. Monetary Policy on Equity and Bond Markets: A Spatial Panel Data Model Approach

Abstract

We use spatial panel data model analysis to study the international transmission of U.S. monetary policy shocks in the global equity and bond markets. Through this analysis, we decompose the overall effect of such a shock into 1) direct effects, 2) higher-order network effects transmitted through global economic networks, and 3) simultaneous effects transmitted between local equity and bond markets. Theoretically, our analysis of the transmission mechanism for the shocks relies on a network model with monetary policy spillovers. Empirically, we study asset price responses around the scheduled Federal Reserve announcements to demonstrate the significant roles of all three effects in the transmission of shocks.