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Macroeconomic news and repricing of monetary policy expectations

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  • Xia, Fan Dora
  • Zhu, Xingyu Sonya

Abstract

We analyze how short-term government bond yields in the United States, United Kingdom, and Canada respond to inflation and labor market news to infer the monetary policy reaction function as perceived by financial markets. Our findings reveal that the perceived reaction function varies across countries and evolves over time. Furthermore, we document significant spillovers from U.S. macroeconomic news to other countries, underscoring the pivotal role of U.S. monetary policy in shaping the global financial system.

Suggested Citation

  • Xia, Fan Dora & Zhu, Xingyu Sonya, 2026. "Macroeconomic news and repricing of monetary policy expectations," Economics Letters, Elsevier, vol. 259(C).
    • Handle: RePEc:eee:ecolet:v:259:y:2026:i:c:s0165176525006160
    DOI: 10.1016/j.econlet.2025.112779
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    References listed on IDEAS

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    1. Martos, Blake DeBruin & Sekkel, Rodrigo & Stern, Henry & Zhang, Xu, 2025. "Is anyone surprised? The high-frequency impact of U.S. and domestic macro data announcements on Canadian asset prices," Economics Letters, Elsevier, vol. 248(C).
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    3. Zoë Arnaut-Hull & Michael D. Bauer, 2024. "Monetary Policy and Financial Conditions," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2024(07), pages 1-6, March.
    4. Moessner Richhild & Xia Dora & Zampolli Fabrizio, 2023. "Global Inflation and Global Monetary Policy Tightening: Implications for the Euro Area," Intereconomics: Review of European Economic Policy, Sciendo, vol. 58(3), pages 151-154, June.
    5. Faust, Jon & Rogers, John H. & Wang, Shing-Yi B. & Wright, Jonathan H., 2007. "The high-frequency response of exchange rates and interest rates to macroeconomic announcements," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1051-1068, May.
    6. Jonathan Kearns & Andreas Schrimpf & Fan Dora Xia, 2023. "Explaining Monetary Spillovers: The Matrix Reloaded," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(6), pages 1535-1568, September.
    7. Michael D Bauer & Carolin E Pflueger & Adi Sunderam, 2024. "Perceptions About Monetary Policy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 139(4), pages 2227-2278.
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    Keywords

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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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