The US, Economic News, and the Global Financial Cycle

63 Pages Posted: 14 Apr 2020 Last revised: 11 Jan 2021

See all articles by Christoph Boehm

Christoph Boehm

University of Texas at Austin

Niklas Kroner

University of Texas at Austin

Date Written: January 10, 2020

Abstract

We provide evidence for a causal link between the US economy and the global financial cycle. Using a unique intraday dataset, 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 frequently explains more than 15% of the quarterly variation in foreign stock markets. The joint behavior of stock prices and long-term bond yields suggests that systematic US monetary policy reactions to news do not drive the estimated effects. Instead, the evidence is consistent with a direct effect on investors' 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; Commodity prices; High-frequency event study

JEL Classification: E44, E52, F40, G12, G14, G15

Suggested Citation

Boehm, Christoph and Kroner, T. Niklas, The US, Economic News, and the Global Financial Cycle (January 10, 2020). Available at SSRN: https://ssrn.com/abstract=3557564 or http://dx.doi.org/10.2139/ssrn.3557564

Christoph Boehm

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

T. Niklas Kroner (Contact Author)

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

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