The correlation between sovereign bond prices and stock prices was positive from the 1970s to 2000 and then turned negative. Researchers have investigated this phenomenon using data from the 1970s to the present. This paper uses data beginning in the 1960s, when there was a negative correlation between bond and stock prices, to investigate how positive bond–stock price comovements arose. Evidence from identified vector autoregressions indicates that monetary policy shocks beginning in the late 1960s moved bonds and stocks in the same direction, causing bond and stock prices to covary positively. Evidence from estimating a multi-factor model indicates that news of both monetary policy and inflation drove bonds and stocks in the same direction, contributing to positive bond–stock comovements. These findings imply that rising inflation that elicits contractionary monetary policy could alter bonds’ risk characteristics, causing them to covary positively with stocks. Policymakers today should be vigilant that large budget deficits and other factors do not stoke inflation.

Monetary policy shocks and day-ahead electricity markets: Insights from a “bizarre policy experiment”

This paper develops a medium scale New Keynesian dynamic stochastic general equilibrium (NK-DSGE) model for the Ethiopian economy to examine how financial exclusion affects monetary policy effectiveness. The model features heterogeneous households financially included and financially excluded and distinguishes between monopolistically competitive intermediate-good firms and perfectly competitive final-good firms. Using Bayesian estimation with quarterly data from 2000Q1 to 2022Q4, the model evaluates the transmission of monetary policy, preference, and productivity shocks to consumption and labor supply decisions. The results indicate that the effects of an expansionary monetary policy shock unfold gradually, requiring approximately ten quarters for full transmission following a one-standard-deviation reduction in the policy interest rate. Importantly, monetary policy effectiveness declines as the share of financially excluded households increases. Financial exclusion weakens the interest rate transmission channel and reduces welfare gains from stabilization policy. These findings highlight structural constraints that limit policy effectiveness in economies with underdeveloped financialsystems and underscore the importance of financial inclusion for improving macroeconomic stability and social welfare.

Purpose This study investigates the dynamic relationships between Bitcoin returns, global oil prices and equity markets, with a particular focus on the USA (S&P 500) and Saudi Arabia (Tadawul All Share Index – TASI). This study also aims to assess how macro-financial conditions, both domestic and international, influence cryptocurrency performance in the short- and long run. Design/methodology/approach Using monthly data from August 2010 to June 2025, the study applies vector autoregression and vector error-correction models to capture short-term spillovers and long-term equilibrium relationships between Bitcoin, oil prices, equity indices, inflation, US federal funds rate and GDP growth. Dummy variables are included to control for structural breaks and extreme market events. Findings Bitcoin exhibits strong persistence and significant short-run sensitivity to US equity and monetary policy shocks, while TASI impacts are more delayed. Oil prices consistently affect Bitcoin, highlighting the role of global commodities. Long-term equilibria reveal that Bitcoin adjusts to deviations from macro-financial fundamentals, with stronger influence from US than Saudi markets. Originality/value This study integrates both developed and emerging market financial factors, offering new insights into Bitcoin’s cross-market linkages and return dynamics.

FOEs and the transmission of US monetary policy shocks: Evidence from China

Time-varying effects of monetary policy shocks in five asian countries

Purpose This paper examines how oil supply shocks and monetary policy actions jointly affect wage inequality in the US, with a particular focus on the role of education. The study addresses three key questions: (1) how exogenous oil supply shocks influence wage inequality, (2) how exogenous monetary policy shocks shape income distribution, and (3) whether these effects differ within and between education groups, revealing the role of human capital in amplifying or mitigating inequality. Design/methodology/approach The analysis uses quarterly US data from 2000 to 2021. Wage inequality is measured using the Theil index constructed from CPS/BLS weekly earnings of full-time workers aged 25 and above, allowing additive decomposition into within- and between-education components (high school, bachelor's and advanced degree). Identification relies on exogenous oil supply news shocks and exogenous monetary policy shocks. A vector autoregression (VAR) framework is estimated, and impulse response functions trace the dynamic effects of both shocks on inequality over a 10-quarter horizon. Findings The results show that overall wage inequality increased by about 15% over the sample period, with roughly 75% driven by within-education dispersion rather than differences across education levels. Oil supply shocks significantly raise wage inequality, increasing dispersion within high-school and advanced-degree groups and widening inequality between education groups. In contrast, contractionary monetary policy shocks compress wage inequality, with the strongest effects observed among advanced-degree earners and a reduction in between-education wage gaps. Research limitations/implications This study focuses exclusively on the US due to data availability at a quarterly frequency, which limits the generalizability of the findings to other economies with different labor market institutions and energy dependence. Wage inequality is measured using CPS/BLS data for full-time workers, excluding self-employed and part-time workers, who may experience different distributional effects. The analysis is confined to education-based groupings and does not account for other dimensions of inequality, such as race, gender or industry. Finally, while exogenous shock measures are used, the VAR framework captures average dynamic responses and may not fully reflect nonlinearities or structural changes across different economic regimes. Practical implications The findings show that macroeconomic policies have important distributional effects. Oil supply shocks significantly increase wage inequality, especially within high-school and advanced-degree groups, implying that energy price volatility can worsen income dispersion. Policies that reduce exposure to oil shocks—such as energy diversification and strategic reserves—may therefore also help limit inequality. Monetary policy, while aimed at stabilizing inflation and output, affects income distribution as well: contractionary shocks compress wage inequality, particularly among highly educated workers. Since most inequality arises within education groups, education alone is insufficient; complementary labor market and earnings-stabilization policies are needed to mitigate the unequal effects of macroeconomic shocks. Originality/value This study is among the first to jointly analyze oil supply shocks and monetary policy shocks using exogenous identification while decomposing wage inequality by education. By highlighting heterogeneous distributional responses across education groups, the paper provides new insights into how energy shocks and stabilization policies interact with human capital to shape income inequality.

The behavior of the stock market is widely regarded in many economies as an indicator of overall economicactivity. In this context, and in light of past crises, it is important to assess whether economic policies wereappropriate for maintaining stability and economic dynamism. This study examines the effects of fiscal and monetary policy shocks on the performance of the Lima Stock Exchange over the period 2003–2023, as well as during the pre-crisis and post-crisis financial subperiods. The research adopts a quantitative approach, with an explanatory scope and a non-experimental longitudinal design. Monthly data were employed to analyze public expenditure, taxes, the policy interest rate, the yield on Peruvian government bonds, and the General Index of the Lima Stock Exchange. A vector error correction model (VECM) was used, with emphasis on generalized impulse–response functions (GIRF). The results show that, over the full sample period, increases in public expenditure (which later turn positive), taxes, the policy interest rate, and the yield on government bonds all generated negative impacts on the Lima Stock Exchange. The effects across subperiods are heterogeneous. During the pre-crisis period, the stock market responded positively to increases in the policy interest rate and government bond yields and negatively to rises in public expenditure and taxes. By contrast, the post-crisis period exhibited a pattern similar to that observed across the full sample.

Abstract We investigate whether the transmission of monetary shocks in Poland depends on the level of economic slack. To this end, we estimate smooth transition panel local projections using Poland’s regional data and analyze how monetary shocks affect unemployment and prices in regimes of high and low unemployment. Our key finding aligns with economic intuition: the response of unemployment to monetary policy shocks is stronger when economic slack is high, compared to when it is low. Conversely, the adjustment of prices to monetary innovations is more pronounced when idle resources in the economy are scarce, compared to when they are abundant. Our main conclusion is further supported by evidence showing that the difference in the strength of the employment response to monetary shocks, depending on the unemployment level, is more pronounced in sectors producing non-tradable goods than in those manufacturing tradable goods. Moreover, comparing our model with its linear counterpart confirms that monetary transmission in Poland indeed exhibits state-dependence, while the analysis of monetary shock distributions under low and high unemployment shows that our results are not driven by the presence of a regime-dependent pattern in monetary disturbances.

ABSTRACT This paper investigates the international spillovers of conventional and unconventional US monetary policy for a diverse set of 44 countries. A two‐stage empirical approach is considered, first using country‐specific structural vector autoregressions to isolate US monetary policy shocks and estimate their dynamic effects on other economies. In the second stage, cross‐country regressions are used to identify the structural characteristics that drive the heterogeneity in these spillovers. The results suggest a distinct dichotomy in the transmission mechanisms: conventional US monetary policy appears to spill over primarily through trade‐related channels in this framework, with its impact shaped by a country's participation in global value chains. In contrast, unconventional policy is transmitted mainly through financial channels, with a country's degree of financial openness being the most critical determinant of its vulnerability. While conventional US monetary policy tightening typically causes currencies to appreciate, unconventional tightening leads to widespread depreciation. These findings imply that the specific tool used by the Federal Reserve may influence the relative dominance of international transmission channels and that financial openness significantly reduces monetary policy autonomy in the face of unconventional US monetary policy shocks.

This study examines the effects of monetary policy shocks on economic growth in Nigeria using a Vector Error Correction Model (VECM). Annual data from 1990 to 2022 on real GDP (LogGDP), interest rate (Ir), exchange rate (LogEr), and money supply (Ms) are analyzed. The Johansen cointegration test confirms a long-run equilibrium relationship among the variables, while the error correction term (ECT) is negative and significant, indicating a 40% speed of adjustment toward equilibrium. In the short run, interest rate and exchange rate shocks negatively and significantly affect GDP, suggesting that tighter monetary conditions and currency depreciation dampen growth. Conversely, money supply positively and significantly influences GDP, affirming the Keynesian and monetarist view that liquidity expansion can stimulate output. The findings are consistent with the Quantity Theory of Money, which asserts that changes in money supply have direct implications for output and prices. Based on the results, the study concluded that monetary policy is a vital tool for stimulating economic activity in Nigeria. It recommends that policymakers reduce interest rates, stabilize the exchange rate, and moderately increase money supply to promote short-term and long-term growth.

This paper examines whether monetary policy shocks affect CO2 emissions over time in Brazil. We show that CO2 emissions decline persistently following contractionary monetary policy shocks. The relationship between monetary policy and CO2 emissions in Brazil is assessed through two channels: trade openness and exchange rates. The theoretical model illustrates how monetary policy affects the domestic economy through the real exchange rate. An application of a Global VAR (GVAR) to the Brazilian economy from 1996 to 2018 investigates the effects of monetary policy in Brazil (or in the U.S.) on real GDP and, subsequently, on CO2 emissions. A contractionary monetary policy shock in Brazil causes a short-run appreciation of the currency, lower output in the long run, and lower CO2 emissions (−0.02% after 24 months). A contractionary U.S. monetary policy shock also causes a decline in the stock market and a short-run depreciation of the currency. This shock leads to lower output in the long run, reducing CO2 emissions by −0.01% after 20 months.

We document a novel transmission channel of monetary policy through the homeowners insurance market. On average, contractionary monetary policy shocks result in higher homeowners insurance prices. Using granular data on insurers’ balance sheets, we show that this effect is driven by the interaction of financial frictions and the interest rate sensitivity of investment portfolios. Specifically, rate hikes reduce the market value of insurers’ assets, tightening insurers’ balance sheet constraints and increasing their shadow cost of capital. These frictions in insurance supply amplify the effects of monetary policy on real estate and mortgage markets by making housing less affordable. We find that monetary policy shocks have a stronger impact on home prices and mortgage applications when local insurers are more sensitive to interest rates. This channel is particularly pronounced in areas where households face high climate risk exposure. Our findings highlight the role of insurance markets in amplifying macroeconomic shocks and the interconnections between homeowners insurance, residential real estate, and mortgage lending.

How do business cycles redistribute between generations, what are the redistribution channels and what role is played by monetary policy? We construct a New-Keynesian life-cycle model and estimate it for the United States. Business cycles redistribute significantly: fluctuations impact welfare of some cohorts by an equivalent of 30% of annual consumption. These first-order effects do not net out over a typical life cycle: some cohorts have been much less lucky than others. Life cycle aspects also amplify second-order costs of fluctuations. Monetary policy shocks are highly redistributive and, hence play an over-proportional role in driving redistribution: they are responsible for over 20% of its total amount. Systematic monetary policy has a quantitatively significant impact on redistribution as well: policy that responds strongly to inflation and output can substantially increase intergenerational redistribution.

Unlike past high-inflation episodes, the euro area labour market remained surprisingly resilient during the inflation surge of the early 2020s. This paper investigates the drivers of this resilience by combining long-span euro area macroeconomic data (1970–2025) with a structural VAR analysis that disentangles the roles of aggregate demand and supply, monetary policy, and factor-substitution shocks. Our findings show that, in contrast to the 1970s and 1980s, the decline in real wages has supported labour demand and, more broadly, the labour market, thereby helping to explain the decoupling between output and employment. We also find that monetary policy shocks have had a stronger impact on output than on employment,further amplifying the pro-cyclicality of labour productivity.

Informality represents a pervasive feature of many emerging and developing economies, yet standard macroeconomic models often ignore its effects, potentially biasing the analysis of shocks and the design of monetary policy. This paper studies the macroeconomic and policy implications of informality using a structural VAR for Colombia and a twoagent New Keynesian model with formal and informal sectors, featuring heterogeneous households including hand-to-mouth consumers. I show that informal labor supply shocks generate sectoral reallocation: informal activity absorbs part of the shock, sustaining aggregate output while altering wages, hours, and capital allocation. In contrast, monetary policy shocks propagate more strongly when informality is present, amplifying distributional and capital-reallocation effects. Critically, the presence of informality alters equilibrium determinacy: standard Taylor rules may fail to ensure uniqueness, with stability depending on the share of Ricardian households, the size of the informal sector, and the monetary policy stance. My findings highlight that accounting for informal production is essential for understanding transmission mechanisms and designing effective policy in economies with significant informality.

This paper examines the international transmission of Chinese monetary policy. We show that, unlike the financial channel typical of US monetary policy, Chinese policy shocks propagate through a real-side demand mechanism, driven by monetary-fiscal interactions that stimulate commodity-intensive infrastructure investment. Consistent with this channel, metal and energy commodity prices are the most responsive to Chinese monetary policy shocks. We quantify the resulting inflationary spillovers using counterfactual methods. The commodity channel accounts for approximately 70 per cent of producer price spillovers to advanced economies, with the largest impact concentrated in countries heavily dependent on commodity imports, such as the four largest European economies. Finally, Chinese monetary policy significantly affects financing conditions in commodity-exporting emerging markets.

The Transmission of International Monetary Policy Shocks to Firms’ Expectations

<div> This research paper is written by <b>Haiqin Liu</b> (Fudan University). </div> <div> <br> </div>Using hand-dated country policy events and daily firm-level equity returns, I estimate how capital controls, exchange rate regimes, and macroprudential policy moderate spillovers from monetary shocks by the Fed, ECB, and BoE. Exploiting an event-study design around precisely dated domestic policy changes, I show that for conventional monetary policy shocks, tightening capital controls or adopting a more flexible exchange rate regime attenuates negative equity spillovers. This is in support of the classic Trilemma. For quantitative easing (QE) shocks, exchange rate flexibility amplifies positive spillovers. Conversely, capital controls and macroprudential policy tightening can mitigate spillovers from QE. Interestingly, what distinguishes macroprudential tools from capital controls is that, as QE purchase sizes scale up, macroprudential tools remain effective whereas the absorptive capacity of capital controls wanes. These results underscore the central role of balance sheet and risk premium channels in the international transmission of QE. Simulations from a stylized two-country collateral model deliver consistent predictions.

This paper assesses the transmission of monetary policy using a new state-of-the-art intra-day dataset of monetary policy shocks for 16 advanced economies and emerging markets, the most comprehensive cross-country coverage to date. Using 30-minute windows around policy announcements, we construct target and path factor shocks for a broad sample of countries and assess their transmission to government bond yields, stock prices, and exchange rates. High-frequency identification improves the significance of estimated responses relative to lower-frequency intraday or daily data. Both target and path surprises generate large and consistent effects across asset classes. We find limited evidence of central bank information effects, confirming the validity of high-frequency methods. Post-COVID-19, transmission to yields and equity prices remains stable, but exchange rate responses weaken—likely due to synchronized monetary tightening across countries. The findings underscore the value of high-frequency data for robust identification and cross-country analysis of monetary policy transmission.