The impact of the movements in US threemonth Treasury bill yields on the equity markets in Latin America

Abstract

This paper presents empirical evidence relating the changes in the US Treasury Bill (T-Bills) yields to equity market movements in Latin America using data prior to the 1994 Mexican financial crisis. The results from estimating a vector autoregressive (VAR) model suggest that there is a strong and immediate negative impact of T-Bill yields on the US equity market, but a slow and varying impact on the equity markets of Mexico, Argentina, Venezuela, Colombia and Brazil. Chile's market, on the other hand, does not seem to be influenced by movements in T-Bill yields. Cross-country differences in response patterns may result from country specific differences in market structure. The results provide evidence in favour of the view that policies at the national level may not always be enough to achieve macroeconomic stability in the region.