KC Fed, Report: FOMC Communication Spillovers: Is There a “Call-Out” Effect?

“International spillovers of U.S. monetary policy decisions have broad implications for foreign economies and market participants. During periods of high volatility in international asset markets, men­tions of foreign countries in FOMC minutes may explain some of the movements of foreign asset prices. In sovereign debt markets, spillovers provide informational content on the term structure of interest rate yields. Large banks with portfolio exposure to global financial markets and investors holding foreign assets benefit from information about the co-movement of asset prices around the world. For U.S. policymak­ers, assessing potential “spillback” effects to the U.S. economy as global economies become more interconnected could be of great importance.”

“U.S. monetary policy decisions produce spillovers in foreign asset markets as FOMC communications alter market participants’ percep­tions of global growth and their expectations for central bank responses abroad. Since the onset of the 2007–09 global financial crisis, monetary policy spillovers have increased in response to policy actions by the Fed­eral Reserve. We evaluate whether international spillovers vary when the triggering information is market-specific by assessing the effect on foreign asset prices on mention versus non-mention days. Although we find limited evidence for a call-out effect of U.S. monetary policy com­munication, a more rigorous treatment is needed to cleanly identify shocks of this type.”