US non-linear causal effects on global equity indices in Normal times versus unconventional eras

Abstract

This paper examines global spillover Quantitative Easing (QE) impacts of US on stock market indices by employing apart from a classical Granger causality, also a non-linear quantile regression approach for detecting causality on the tails of the stock indices’ distributions. Before US unconventional monetary policies, the non-linear causal relationship between the Fed’s balance sheet and stock markets is found to be not significant for most indices over the middle level of quantiles, whereas significant causal relationships are present in tails. There is non-linear evidence that the Fed’s assets were mainly influenced by US, Latin American, Australian and some Asian indices while the other stock indices did not Granger cause balance sheet enlargement for any quantile interval before 2008. Nevertheless, almost all domestic and foreign stock indices are found to exert feedback effects during US QE. We argue that US total assets exert non-linear causality towards all stock indices under scrutiny at least at one level of quantile and tighter links of the Fed mainly with advanced economies are found, as impacts on the upper quantile are stronger during US QE.

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Notes

  1. 1.

    If no value is significant in that interval at all, lag-1 order will be selected.

  2. 2.

    Due to length limitations and the quantity of the results, the results for lag order selection of the quantile causality tests cannot be presented. However, all the results are available upon request.

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Acknowledgements

The authors are grateful to participants of the European Economics and Finance Society (EEFS2018) conference in London for useful comments regarding an earlier version of this paper.

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Correspondence to Stephanos Papadamou.

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Papadamou, S., Kyriazis, Ν.A. & Tzeremes, P.G. US non-linear causal effects on global equity indices in Normal times versus unconventional eras. Int Econ Econ Policy 17, 381–407 (2020). https://doi.org/10.1007/s10368-019-00457-y

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Keywords

  • Unconventional monetary policy
  • Non-linear quantile regressions
  • Causality
  • Stock indices

JEL classification

  • E52
  • E58
  • G15