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The US, Economic News, and the Global Financial Cycle

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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.

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  • Christoph E. Boehm & Niklas Kroner, 2023. "The US, Economic News, and the Global Financial Cycle," International Finance Discussion Papers 1371, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:1371
    DOI: 10.17016/IFDP.2023.1371
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    Cited by:

    1. Ambrocio, Gene & Hasan, Iftekhar & Li, Xiang, 2023. "Global political ties and the global financial cycle," IWH Discussion Papers 23/2023, Halle Institute for Economic Research (IWH).
    2. J. Scott Davis & Eric Van Wincoop, 2021. "A Theory of Gross and Net Capital Flows over the Global Financial Cycle," Globalization Institute Working Papers 410, Federal Reserve Bank of Dallas, revised 20 Dec 2022.
    3. Corneli, Flavia & Ferriani, Fabrizio & Gazzani, Andrea, 2023. "Macroeconomic news, the financial cycle and the commodity cycle: The Chinese footprint," Economics Letters, Elsevier, vol. 231(C).
    4. Christopher D. Cotton, 2022. "To What Degree and through Which Channel Do Central Banks Other Than the Federal Reserve Cause Spillovers?," Working Papers 23-3, Federal Reserve Bank of Boston.
    5. Alexander Rodnyansky & Yannick Timmer & Naoki Yago, 2023. "Intervening against the Fed," CESifo Working Paper Series 10575, CESifo.
    6. Rodnyansky, A. & Timmer, Y. & Yago, N., 2023. "Intervening against the Fed," Cambridge Working Papers in Economics 2357, Faculty of Economics, University of Cambridge.
    7. Xin Tian & Jan Jacobs & Jakob de Haan, 2022. "Alternative Measures for the Global Financial Cycle: Do They Make a Difference?," CESifo Working Paper Series 9730, CESifo.

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    More about this item

    Keywords

    Global Financial Cycle; Macroeconomic announcements; International spillovers; Stock returns; VIX; Monetary Policy; High-frequency event study;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • 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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