Financial spillovers of international monetary policy: Six hypotheses on the Latin American case, 2010-2016

This paper aims to determine if there is a differential incidence between conventional and unconventional monetary policy of developed economies in Latin American financial markets, evaluating six hypotheses that can be extracted from the economic literature. Financial spillovers are considered on two dimensions: financial asset prices (fixed income and equity markets) and interest rates (monetary policy rate and loans rates). The main finding is that both conventional and unconventional monetary policies in US and Eurozone have a significant and direct incidence on Latin American fixed income markets, although the effect of unconventional monetary policy is low. In contrast, only unconventional monetary policy has a significant effect on Latin American equity markets. On the other hand, regardless of the exchange rate pass-through of Latin American economies, the conventional monetary policy of the United States and Eurozone has a low but significant incidence on both monetary policy rates and lending interest rates in Latin America, while the unconventional monetary policies have no incidence. As anticipated, US conventional and unconventional monetary policy have a higher incidence on Latin American financial markets with respect to the monetary policy decisions in Eurozone and Japan. Finally, free trade agreements between developed economies and Latin American economies do not have a significant impact on the relationship between international monetary policy and Latin American financial markets.