نرخ بهره بین المللی و اطلاعیه های سیاست های پولی آمریکا: شواهدی از هنگ کنگ و سنگاپور

This paper investigates the responses of market interest rates to US monetary policy announcements for the US and two emerging economies, Hong Kong and Singapore which are similar on many respects but have experienced opposite exchange rate regimes in the last twenty years. Our results, based on market expectations extracted from federal fund futures rates, document that FOMC announcements significantly affect the term structure of interest rate in the US and both Asian countries. Further, international interest rate differentials around FOMC meeting dates tend to be negative for short maturities with the impact gradually dissipating as bond maturity increases. Finally, for the case of Singapore, we find that domestic interest rates react to both external and domestic monetary policy announcements with a magnitude that is larger over the full bond maturity spectrum for domestic announcements. These results are robust to time-varying futures risk premia and alternative measures of interest rates expectations.

In recent years a great deal of attention has been paid to understand the relationship between monetary policy and market interest rates. A common finding of this literature is that unanticipated changes in the US Federal Reserve target rate causes US bond yields to move substantially (see, inter alia, Cook and Hahn, 1989, Kuttner, 2001, Cochrane and Piazzesi, 2002, Piazzesi, 2005 and Gürkaynak et al., 2005a and the reference therein). A separate literature has also investigated how macroeconomic news, including monetary policy announcements, are incorporated into bond prices. Using high-frequency data, many studies have documented that macroeconomic announcements significantly affect the dynamics of bond prices around the time of the announcements ( Fleming and Remolona, 1997, Fleming and Remolona, 1999, Balduzzi et al., 2001, Green, 2004 and Fleming and Piazzesi, 2006 and the references therein). A common aspect of these papers is that they have all focused on the US market. Surprisingly, little attention has been paid to understand the relationship between US monetary policy actions and international market interest rates. In internationally integrated financial markets, interest rates co-move to a larger extent and Federal Open Market Committee (FOMC) announcements 1 are likely to affect the dynamics of market interest rates not only in the US but also in other countries. Further, the magnitude of this response is likely to be affected by the fact that many currencies, especially of emerging economies, are linked to the US dollar by different exchange rate arrangements. The present paper fills this gap in that we investigate the responses of market interest rates to US monetary policy announcements for the US and two emerging economies, namely Hong Kong SAR (Hong Kong henceforth) and Singapore. The analysis of these two emerging economies' interest rate markets is novel in this literature. In fact, after Edwards and Khan (1985) who initially introduced a framework to analyze the determination of interest rates in developing countries with an application to Singapore, only few papers have investigated the responses of international market interest rates to FOMC announcements. 2 Most of these contributions essentially focused on a sample of developed economies ( Becker et al., 1995, Faust et al., 2003, Ehrmann and Fratzscher, 2002b and Ehrmann and Fratzscher, 2005) or on a single emerging economy ( Robitaille and Roush, 2006). The choice of these interest rate markets is particularly appealing in this context for a number of reasons. Hong Kong and Singapore are two very similar small open economies from the Far East region. Both are comparable in terms of size, openness, geography and they both are premier financial centers with developed financial markets. Both economies share a tradition of laissez-faire economic policies and, politically, their past as British colonies has affected their legal structures. However, one major difference between these two economies is their exchange rate policy. In fact, since October 1983, the date when Hong Kong has adopted a fixed exchange rate arrangement, the two economies experience opposite exchange rate regimes (see, inter alia, Latter, 1993, Cheung, 1998, Tsang and Ma, 2002 and Cheung and Yuen, 2002; and the references therein). Thus, Hong Kong and Singapore provide us with an ideal setting to test, from a new perspective, the familiar ‘impossible trinity’ textbook proposition, i.e. financially open countries face a trade-off between fixed exchange rate regime on the one hand, and the ability to set their interest rates independently, on the other hand. This paper contributes to the literature on several respects. First, we investigate the response of the term structure of interest rates to FOMC announcements by using market-based proxies for expectations obtained from short-term interest rate futures prices. Second, we extend previous studies to explore the role of FOMC announcements on the dynamics of the term structure of international interest rate differentials rather than focusing exclusively on the response of market interest rates in each country in isolation. Third, we disentangle the different impact of external (i.e. US) and domestic monetary policy announcements on the dynamics of emerging economies' market interest rates. Our results with regards to the three questions addressed in the paper are as follows. First, we find that FOMC announcements do affect market expectations about the future path of short-term interest rates which, in turn, substantially influence the behavior of the term structure of interest rates in the US and in both Asian countries. At first glance, when all FOMC announcements are taken into account, the prediction of the ‘impossible trinity’ proposition seems to be validated. Hong Kong and Singapore exhibit different responses to US monetary policy announcements and Hong Kong follows more closely the pattern exhibited by the response of US interest rates. This is in line with the predictions of open-economy models with policy anticipation which postulate that in presence of flexible exchange rate regimes, international monetary policy shocks are only partially absorbed by changes in domestic interest rates and cause changes in expected foreign exchange rates paths (Deaves, 1990). This finding is also consistent with the belief that more flexible exchange rate regimes enable countries, such as Singapore, to pursue independent monetary policies and, thus, display divergent cross-country interest rate movements. However when FOMC announcements are classified as Federal Reserve reactions to new information about the state of the US economy or due to changes in policy preferences (Ellingsen and Söderström, 2001) a different pattern arises. The response of international interest rates to Federal Reserve reactions to new information about the state of the US economy is very similar across all interest rate markets regardless of the exchange rate arrangement in place. This finding suggests that when relevant news about the state of the economy lead the Fed to change the Federal fund target rate, foreign interest rates largely respond to US monetary policy announcements even in presence of flexible exchange rate regimes. This is because monetary policy shocks in one country provide a signal about changes in future global macroeconomic fundamentals (i.e. inflation and real activity). Based on this signal, expectations about the likely interest rate reactions in foreign countries would be revised and would quickly become embedded in foreign interest rates (Becker et al., 1995). These findings also help to rationalize the mounting empirical evidence indicating that cross-country term structures of interest rates are affected by common global factors that are governed by the dynamics of global macroeconomic fundamentals (Diebold et al., 2007). Second, our analysis of international interest rate differentials shows that around FOMC meeting dates they tend to be negative (i.e. US interest rates react more than international interest rates) for short maturities with the impact gradually dissipating as bond maturity increases. These results are in line with some recent empirical evidence documenting that international interest rate differential with the US tend to fall to a change in US interest rates (Uribe and Yue, 2006) and international interest rates co-move with US interest rates in the long-run regardless of the exchange rate regime in place (Frankel et al., 2004).3 Third, for the case of Singapore,4 in line with similar results recorded in Becker et al. (1995) and Ehrmann and Fratzscher (2005), we find that domestic interest rates react to both external (US) and domestic (Singapore) monetary policy announcements and the magnitude of the response to domestic announcements is larger, over the full bond maturity spectrum, than the one recorded for US monetary policy announcements. This paper is related to earlier research by Fair (2003) and Ehrmann and Fratzscher, 2002a, Ehrmann and Fratzscher, 2002b and Ehrmann and Fratzscher, 2005), who investigate the effects of monetary policy announcements and macroeconomic news on the dynamics of asset prices in the US and the euro area. Another important related paper is Faust et al. (2003) who using high-frequency data on the prices of federal fund futures contracts look at the responses of UK and German short-term interest rates to US monetary policy announcements. Our paper differs from these contributions on several important respects. First, the main focus of our paper is to look at the potential role of diverse exchange rate arrangements. Second, our empirical analysis focuses exclusively on interest rates markets and explores the interaction between interest rates at different maturities up to ten years. Third, we investigate the implications of the announcements for the term structure of interest rate differentials. Fourth, in this study interest rates futures prices contracts are comparable in terms of underlying assets across different interest rates markets. The rest of the paper is organized as follows: Section 2 provides a brief summary of the existing literature and describes the empirical framework adopted throughout the paper. Section 3 describes the data employed in the empirical investigation and discusses potential data issues. Section 4 reports the main empirical results. Section 5 provides the results of some robustness checks and a final section concludes.

In this paper we examine the impact of US monetary policy announcements on the term structure of interest rates in the US and two emerging economies, Hong Kong and Singapore. These two small open economies are chosen because of their similarities in terms of size, openness, geography and the preponderance of their financial markets. One major difference between the two economics is represented by their exchange rate policy which has been conducted in opposite ways in the past twenty years. Thus, Hong Kong and Singapore provide us with an ideal setting to test, from a new perspective, the familiar ‘impossible trinity’ textbook proposition, i.e. financially open countries face a trade-off between fixed exchange rate regime on the one hand, and the ability to set their interest rates independently, on the other hand. By using data spanning the period from 1994 to 2004, our results suggest that US monetary policy announcements do affect changes in expectations about the future path of short-term interest rates which, in turn, substantially influence the term structure of interest rates in the US and, with different magnitudes, in both Asian economies. More specifically, when all FOMC announcements are taken into account, the prediction of the ‘impossible trinity’ proposition seems to be validated. Hong Kong and Singapore exhibit different responses to US monetary policy announcements and Hong Kong follows more closely the pattern exhibited by the response of US interest rates. However when FOMC announcements are classified as Federal Reserve reactions to new information about the state of the US economy or due to changes in policy preferences a different pattern arises. The response of international interest rates to Federal Reserve reactions to new information about the state of the US economy is very similar across all interest rate markets regardless of the exchange rate arrangement in place. This finding suggests that when relevant news about the state of the economy lead the Fed to change the Federal fund target rate, foreign interest rates largely respond to US monetary policy announcements even with flexible exchange rate regimes. This is because monetary policy shocks in one country provide a signal about changes in future global macroeconomic fundamentals (i.e. inflation and real activity). Based on this signal, expectations about the likely interest rate reactions in foreign countries would be revised and would quickly become embedded in foreign interest rates. This is also consistent with the mounting empirical evidence indicating that cross-country term structures of interest rates are affected by common global factors that are governed by the dynamics of global macroeconomic fundamentals (Diebold et al., 2007). Further, US monetary policy announcements impact differently on the term structure of international interest rates and the term structure of US interest rates. In fact, around FOMC meetings dates the behavior of international interest rate differentials is characterized by a negative response for short bond maturities, while the impact is very close to zero for long bond maturities suggesting that international interest rates co-move to a larger extent in the long run regardless of the exchange rate regime in place. The response of country interest rates to their own domestic monetary policy announcements is larger in magnitude than the response to US monetary policy announcements and its impact across bond maturities is progressively decreasing as bond maturity increases. This further corroborates our previous findings and reinforces the argument that the dynamics of international term structures of interest rates are due to the complex interaction between domestic factors (i.e. news regarding the state of the domestic economy) and global factors (i.e. news regarding the state of the global economy and its main drivers). This study ought to be seen as a preliminary attempt towards the understanding of how market expectations in different countries are affected by common shocks and how monetary policy shocks in leading industrialized economies (i.e. the US or the euro area) affect the dynamics of international interest rates in financially integrated markets. There are a number of ways in which this study could be extended. First, one obvious concern is that our results may be sample specific. Our choice of interest rates and sample period is mainly driven by data availability and reflect our intention to focus on small open economies where their financial markets are fully developed but have experienced two different exchange rate regimes over a relatively long period of time. Testing the robustness of our findings using other interest rates markets data and/or sample periods is a logical extension. Second, the empirical framework employed is essentially a static framework, in that we only consider the impact of US monetary policy announcements around FOMC meetings dates. It would be interesting to extend this analysis to a dynamic framework where the effect of the shocks is not only limited to FOMC meetings dates but fully explores the impact of US monetary policy announcements on market interest rates after they occur (e.g. Frankel et al., 2004). Third, although the empirical results tell us that the term structures of interest rates in different countries react differently to FOMC announcements, our framework does not explain why these differences occur. Explaining these findings would require extending the existing framework in two separate but not necessarily independent directions: 1) a macroextension which would require a sound theoretical macroeconomic model (e.g. Uribe and Yue, 2006) where the plausibility of monetary policy shocks is assessed jointly with the analysis of their impact on the macroeconomy 2) a micro extension where spot and futures market trading activity and interbank market liquidity are explicitly incorporated. However, these issues remain on the agenda for future research.