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The purpose of this paper is to consider a monetary-jump model to measure the contribution of jumps to the total volatility of interest rates in the Brazilian interbank market and to assess the extent to which the central bank’s unanticipated monetary policy decisions are driving these jumps.

The authors use a sample of swap rates contracts with different maturities to estimate a mixture GARCH-jump model that disentangles two components of interest rate volatility: a GARCH-type specification that models conditional heteroskedasticity to account for the volatility during “normal” times and a Poisson process that models the occurrence of abrupt changes in interest rates.

The contribution of jumps to the total volatility is substantial, and monetary policy decisions partly explain the occurrence of those jumps. In particular, the authors find that the likelihood of a jump occurring during a meeting day of the Brazilian central bank’s monetary policy committee (COPOM) is higher in comparison to that of a non-meeting day.

The occurrence of jumps in the term structure of interest rates raises the question of the transmission mechanism of the monetary policy through the asset price channel as well as the relation between jumps and economic fundamentals.

Communication between the central bank and the market will affect expectations and asset values. If the central bank’s decisions generate fewer jumps, then the variance of the interest rate-linked asset values will also be reduced.

The paper employs a new approach to assess monetary policy surprises to a set of Brazilian interest rate data and relates the occurrence of jumps to the macroeconomic environment.

The purpose of this paper is to examine the impact of Federal Open Market Committee (FOMC) announcements, which includes information about the targeted Federal fund rate and revision to the future path of monetary policy on Southeast Asian stock market performance.

This paper has used a sample of five national equity market indexes over the period 1997-2013 that covers 132 scheduled FOMC meetings. The authors have developed the model of Wongswan (2009) and Kontonikas et al. (2013) to quantify target surprise and path surprise.

The results first show that all the stock markets examined do respond to information in FOMC announcements. Second, the target Federal fund rate has more impact on Southeast Asian stocks performance than information about the future path of monetary policy does. Third, different Southeast Asian equity markets respond similarly to targeting the Federal fund rate, while the responses to monetary policy differ from each other. Fourth, the response of each country to the FOMC announcement is not statistically different in the two periods of financial crisis.

Southeast Asian financial markets are increasingly highly correlated to the US market. The main channel in which FOMC announcement has impact on Southeast Asian stock markets is through US price transmission. This is the case of foreign firms borrowing from the US market. Then, an increase in interest rate, which means that the cost of financing increases, will lower firm equity value.

The understanding of the response of the Southeast Asian stock markets to target surprise and path surprise, and the impact of each surprise in different time periods, would be important to investors and encourage further discussion amongst academics in Southeast Asia, where stock markets have been emerging in recent years.

This study examines the response of Australian interest rate swap spreads to the arrival of macroeconomic news information during the economic expansion and contraction periods. We find that the impact of news announcements on swap spread change differs and largely depends on the state of the economy. The unexpected inflation rate is the only news released that has significant impact on swap spreads across all maturities during contractions and remains the important news announcement throughout the business cycles, while the unanticipated unemployment rate tends to be more relevant to 10-year swap and the unanticipated change in money supply tends to be more relevant to 4- and 7-year swaps during expansions. We also find shocks from these news surprises appear to have significant impact on the conditional volatility of the swap spread change during both economic phases. The macroeconomic shocks in general are negatively related to the conditional volatility of the swap spread change, suggesting that the newsworthy announcements tend to reduce uncertainty on the news announcement days in the swap market during expansion and contraction periods.

This chapter investigates the impact of policy interest rate news from the U.S. Federal Reserve (Fed) and the European Central Bank (ECB) on stock returns and volatilities of U.S. NYSE and German DAX listed commercial banks. We find that Fed news has the most influence on both U.S. and German listed bank stocks and an unexpected policy rate increase (decrease) lowers (raises) returns and raises volatility in the majority of cases. On the other hand, ECB news generally increases bank stock volatility in the United States but has little impact within its own domestic banking industry. While our results for the U.S. listed banks confirm that their stock prices are more responsive in bad economic times and also during periods of monetary tightening, we find disparities for German banks suggesting that U.S. and European banking industries respond heterogeneously to monetary policy news but the Global Financial Crisis increased the sensitivity of all banks to monetary policy news.

The purpose of this note is to examine the impact of US money‐supply announcements on United Kingdom interest rates using weekly data over the period 1977 to 1982. We find some evidence for the proposition that surprise increases in the US money supply increased UK interest rates over our sample period.

In this chapter we investigate the response of bond markets to macroeconomic news announcements in the euro area. Specifically, we analyze the impact of (un)expected changes in the interest rate, unemployment rate, consumer confidence index and industrial production index on the returns, volatility and correlations of European government bond markets. Overall, our results suggest that, bond return volatility strongly reacts to news announcements and that the response is asymmetric. However, the influence of macroeconomic news announcements appears insignificant for bond returns. Finally, our results paint a complex picture of the effect of macroeconomic news releases on correlations.

The purpose of this paper is to investigate the impact of Federal Open Market Committee (FOMC) meetings and the changes of the target rates on stock market uncertainty.

Multivariate regression analysis is applied to the historical data of VIX, FOMC meetings and target rates. Subtle relations are revealed by further categorizing the FOMC meetings into being scheduled and unscheduled and distinguishing the signs of the changes in VIX and target rates. CPI and the prime rate are used for robustness test.

The authors first examine the relation between FOMC meetings and target surprises; the results indicate that unscheduled FOMC meetings heavily impact the target surprises. Then, the authors investigate the relation between FOMC meetings and VIX changes; the results show that both unscheduled and scheduled FOMC meetings impact VIX, where the impacts of scheduled FOMC meetings are more substantial. The authors also analyze the responses of VIX to the target surprises, and the results reveal that there is an asymmetric effect of target surprises on VIX, where the influences of the scheduled positive target surprises are more significant. Finally, by examining the relation between the FOMC meeting and the risk-neutral density of the VIX option, the authors conclude that both KURT and SKEW are more affected by unscheduled FOMC meetings.

Deeper dimensions of the relations between VIX, FOMC meetings and target rates are analyzed and more insightful understandings of such relations are gained.

This paper quantifies the effects of recent Federal Reserve interest rate changes, specifically recent hikes and cuts in the federal funds rate since 2015, on Midwest farmland values.

The authors apply three autoregressive distributed lag (ARDL) models to a panel data of state-level farmland values from 1963 to 2018 to estimate the dynamic effects of interest rate changes on the US farmland market. We focus on the I-states, Lakes states and Great Plains states. The models in the study capture both short-term and long-term impacts of policy changes on land values.

The authors find that changes in the federal funds rate have long-lasting impacts on farmland values, as it takes at least a decade for the full effects of an interest rate change to be capitalized in farmland values. The results show that the three recent federal funds rate cuts in 2019 were not sufficient to offset the downward pressures from the 2015–2018 interest rate hikes, but the 2020 cut is. The combined effect of the Federal Reserve's recent interest rate moves on farmland values will be positive for some time starting in 2022.

This paper provides the first empirical quantification of the immediate and long-run impacts of recent Federal Reserve interest rate moves on farmland values. The authors demonstrate the long-lasting repercussions of Federal Reserve's policy choices in the farmland market.

This study seeks to investigate the sensitivity of stock returns at the industry level to market, exchange rate and interest rate shocks in the four major European economies: France, Germany, Italy, and the UK.

The paper utilises the methodology of Campbell and Mei (1993) to decompose systematic risks into components attributable to news about future dividends (cash flows), real interest rates and excess returns.

In addition to significant market risk, the paper finds significant levels of exposure to exchange rate risk in industries in all four markets. Significant levels of interest rate risk are only identified in Germany and France. All three sources of risk contain significant information about future cash flows and excess returns.

Future research could investigate the extent of exposure in other markets, or investigate whether the findings change at the firm level. Additionally it could be investigated whether recent asset pricing work such as Campbell and Vuolteenaho (2004) can be utilised to investigate this research problem.

The paper identifies which industry portfolios have significant exposures and decomposes these risks. This information is relevant for investors and portfolio managers, as well as financial management within the firm.

The paper utilises an alternative econometric methodology to investigate the extent of exposure to exchange rate and interest risks in industrial portfolios in four European markets.