The US, Economic News, and the Global Financial Cycle

Christoph Boehm and T. Niklas Kroner

No 1371, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We provide evidence for a causal link between the US economy and the global financial cycle. Using intraday data, we show that US macroeconomic news releases have large and significant effects on global risky asset prices. Stock price indexes of 27 countries, the VIX, and commodity prices all jump instantaneously upon news releases. The responses of stock indexes co-move across countries and are large - often comparable in size to the response of the S&P 500. Further, US macroeconomic news explains on average 23 percent of the quarterly variation in foreign stock markets. The joint behavior of stock prices, bond yields, and risk premia suggests that systematic US monetary policy reactions to news do not drive the estimated effects. Instead, the evidence points to a direct effect on investor’ risk-taking capacity. Our findings show that a byproduct of the United States' central position in the global financial system is that news about its business cycle has large effects on global financial conditions.

Keywords: Global Financial Cycle; Macroeconomic announcements; International spillovers; Stock returns; VIX; Monetary Policy; High-frequency event study (search for similar items in EconPapers)
JEL-codes: E44 E52 F40 G12 G14 G15 (search for similar items in EconPapers)
Date: 2023-02-25
New Economics Papers: this item is included in nep-des, nep-ifn, nep-mac and nep-mon
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Citations: View citations in EconPapers (7)

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Related works:
Working Paper: The US, Economic News, and the Global Financial Cycle (2023)
Working Paper: The US, Economic News, and the Global Financial Cycle (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1371

DOI: 10.17016/IFDP.2023.1371

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