The effects of U.S. monetary policy uncertainty shock on international equity markets

Abstract

In this study, we quantify the propagation effects of the U.S. monetary policy uncertainty (MPU) shock on real equity prices of 33 advanced and emerging countries over the period 1980Q1 to 2019Q4. We employ a large-scale global vector autoregressive (GVAR) model which simultaneously accounts for country-specific macroeconomic conditions as well as regional and global trade and financial linkages among the countries. We show that the U.S. MPU shock spreads negative (but temporary) effects on the real equity prices, albeit with greater impacts on the advanced markets than their emerging counterparts owing to the greater connections of the former with the U.S. economy. Our results hold important implications for portfolio investors and policymakers.