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Federal Reserve Communications And Emerging Equity Markets

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Executive Summary

Work on the impact of U.S. monetary policy on emerging financial markets mostly focuses on official federal funds rate announcements; empirical evidence using data on informal communication channels, such as speeches, is scant. Employing a unique data set covering formal and informal communication channels in a GARCH model framework, the authors provide comprehensive evidence on the effects of U.S. monetary policy on 17 emerging equity market returns over the period 1998-2009. They find, first, that both monetary policy actions and communications have a significant impact on market returns. Second, target rate change surprises are an important driver of emerging market returns.

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