Stock market evidence on the international transmission channels of US monetary policy surprises

Tim D. Maurer and Dr. Thomas Nitschka



JEL classification
E44, E52, F36, G15

International spillovers, news, monetary policy, stock returns, vector autoregression


We decompose unexpected movements in the stock market returns of 40 countries into different news components to assess why expansionary US monetary policy surprises are good news for stock markets. Our results suggest that prior to the zero lower bound (ZLB) period, federal funds rate surprises affect foreign stock markets mainly because such surprises are associated with news about future real interest rates. The effects of forward guidance surprises are negligible. At the ZLB, large-scale asset purchases (LSAP) reflect more than commitment to forward guidance. LSAP surprises constitute cash-flow news, while unanticipated forward guidance primarily reflects real interest rate news.