Identification through heteroscedasticity in a multicountry and multimarket framework: The effects of European Central Banks on European financial markets

Arbeitspapier

This paper formally proves that Rigobon and Sack (2004)'s approach of identifying monetary policy shocks through heteroscedasticity can be extended to a multimarket and multicountry framework. Applying our multivariate framework allows deriving consistent estimators of monetary policy effects. The advantage of our extended approach is illustrated by applying it to European financial markets. We analyse monetary policy actions of the European Central Bank (ECB), the Bank of England, the Swiss National Bank, and the Swedish Riksbank on major stock indices. First, in line with the Rigobon and Sack (2004) approach, we find an increase in the variance of European stock and money market returns on days when monetary policy committee meetings are held. Second, monetary policy actions have a significant impact on financial markets. Third, we discover that ECB monetary policy moves have spillover effects on the British and Swiss financial markets, but find no evidence of reverse causality.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: MAGKS Joint Discussion Paper Series in Economics ; No. 24-2011

Classification and Topics

• Classification: Wirtschaft ; Multiple or Simultaneous Equation Models: Instrumental Variables (IV) Estimation ; Financial Markets and the Macroeconomy ; Monetary Policy ; International Financial Markets
• Subject: financial markets ; instrumental variable estimation ; identification through heteroscedasticity ; spillover effects ; Geldpolitik ; Schock ; Wirkungsanalyse ; Börsenkurs ; Aktienmarkt ; Spillover-Effekt ; EU-Staaten ; Großbritannien ; Schweiz ; Schweden

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hayo, Bernd ; Niehof, Britta
• Event: Veröffentlichung
• (who): Philipps-University Marburg, Faculty of Business Administration and Economics
• (where): Marburg
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/56496
• Last update: 10.03.2025, 11:42 AM CET