Published Online:April 2025
Product Name:The IUP Journal of Applied Economics
Product Type:Article
Product Code:IJAE010225
DOI:10.71329/IUPJAE/2025.24.2.5-27
Author Name:Sonali Goel and Harshita Keshan
Availability:YES
Subject/Domain:Economics
Download Format:PDF
Pages:5-27
The paper studies the influence of US monetary policy, particularly FOMC statements, on global equity markets. A semi-automated content analysis is applied on past two decades of FOMC statements to extract sentiment scores and quantify their impact on foreign equity indices. The event study approach finds that hawkish (dovish) statements lead to statistically significant declines (rises) in foreign equity markets, with the magnitude of the response varying considerably based on the individual country’s level of global financial integration. In particular, one standard deviation hawkish US monetary policy shock, on an average, leads to 14 basis points reduction in foreign stock market returns. By incorporating advanced sentiment analysis into the assessment of policy shocks, this paper offers new insights into how Fed’s monetary policy communication impacts global markets, not just at an aggregate level, but also at a country-specific level, capturing and explaining its heterogenous impact, thus contributing to the growing literature on sentiment-based analysis of monetary policy.
The influence of United States (US) monetary policy on financial markets has been accorded critical importance in economic research as it not only impacts its domestic financial conditions but also spills over to other financial markets. The dominant role of the US dollar in international trade and global financial activity amplifies these effects, underscoring the interconnectedness of financial systems.