Are US Monetary Surprises Surprising? Evidence from Global Markets

We show that FOMC announcement surprises are predicted by preceding ECB monetary policy announcement surprises. Specifically, a 1 p.p. ECB monetary policy surprise predicts a subsequent 0.25 p.p. FOMC surprise. Increases in stock (bond) prices around the ECB meeting also predict decreases (increases) around subsequent FOMC meetings. We rationalize these empirical facts with a model in which 1) the Fed responds to non-US economic conditions more strongly than investors expect and 2) the ECB releases growth news at the time of its announcements. Our results suggest that the Fed’s response to non-US news is an important facet of monetary policy.

Keywords: Fed surprises, ECB surprises, monetary policy identification, international finance

JEL Classification: E43, E52, E58, F30

Suggested Citation: Suggested Citation

Kane, Andrew and Sarkisyan, Sergey and Viratyosin, Tasaneeya, Are US Monetary Surprises Surprising? Evidence from Global Markets (March 15, 2023). Jacobs Levy Equity Management Center for Quantitative Financial Research Paper, Available at SSRN: https://ssrn.com/abstract=4248504 or http://dx.doi.org/10.2139/ssrn.4248504