UNITED-STATES MONEY SUPPLY ANNOUNCEMENTS AND PACIFIC RIM STOCK MARKETS - EVIDENCE AND IMPLICATIONS

This paper documents variation across Pacific Rim countries in the response of equity values to US M1 announcement suprises. We relate the difference across countries to measures of capital mobility, export trade with the USA, foreign exchange and money market arrangements, and correlation with the US stock market. We find that The response to US M1 suprises is best explained by the country's degree of integration with international capital markets. The flexibility of the exchange rate and interest rates may also be significant. While the evidence is supportive of the 'anticipated Fed reaction' theory of the effect of money announcement suprises, the differing response ro M1 shocks across Fed policy regimes remains unexplained. © 1990.