 |
We investigate the impact of the Federal Reserve's announcements regarding a tighter monetary policy on asset prices in emerging economies. Employing local projections, we show that there is a significant and robust decline of equity markets in EMEs to pure U.S. monetary policy shocks, leading to potential undervaluation. However, we uncover a contrasting effect when examining the information content within tightening announcements, as they tend to result in over-valuation of asset prices. We attribute these divergent responses to market perceptions of signaling a better-than-expected economic outlook. Additionally, we find that not only financial but also real integration play a role in influencing the transmission of information shocks. Our findings con- tribute to understanding the channels through which global monetary policy affects emerging economies, emphasizing the importance of information content of policy announcements and trade integration in shaping asset price booms and busts.
