The US, Economic News, and the Global Financial Cycle
63 Pages Posted: 14 Apr 2020 Last revised: 11 Jan 2021
Date Written: January 10, 2020
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
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