ON THE SPILLOVERS OF UNCONVENTIONAL MONETARY POLICY: An Analysis of Announcement Spillovers in Emerging Financial Markets

Abstract

The aggressive monetary policy response to the recent financial crisis has had reverberating effects throughout the global economy. This paper examines the spillover effects of mone-tary policy announcements from four systemically important central banks - the Federal Reserve, Bank of Japan, European Central Bank, and Bank of England - on emerging mar-ket financial variables in the period between 2010 and 2014. Monetary policy surprises are measured by changes in the relevant 10-year sovereign yield around the announcement date. The study finds that announcement spillovers were highly differentiated between banks. While Federal Reserve easing announcements strengthened emerging market equi-ties and currencies vis-à-vis the dollar, similar announcements from the Bank of Japan, Eu-ropean Central Bank, and Bank of England yielded the opposite result. It also finds evi-dence for regional financial linkages playing a role in influencing spillovers at the regional level, though these effects are not universally felt. A further breakdown of spillovers over time indicates that emerging markets responded to policy announcements in different ways as central bank policy programs evolved.