Financial Crisis and the Global Transmission of U.S. Monetary Policy Surprises

I identify how the Fedʼs dependence on unconventional monetary policy after the 2007-2008 financial crisis and its return to conventional policy in 2015 have affected the global influence of U.S. monetary policy. I divide the sample into three phases according to the Fedʼs monetary policy regimes: pre-crisis (Aug 2001-Nov 2008), crisis (Nov 2008-Dec 2015), and post-crisis (Dec 2015-Sep 2017). Daily variations in government bond yields and foreign exchange spot rates for 46 countries on FOMC meeting days show that the influence of U.S. monetary policy surprises intensified after the financial crisis. Responses are stronger in a group of emerging markets than in developed economies. I also find that more flexible exchange rate regimes lead to larger magnitudes of responses to U.S. monetary policy surprises. My results show that the decoupling of interest rates between the U.S. and other countries forced foreign financial markets to respond sensitively to U.S. monetary policy surprises after the financial crisis.