The US, Economic News, and the Global Financial Cycle

103 Pages Posted: 14 Apr 2020 Last revised: 16 Feb 2023

See all articles by Christoph Boehm

Christoph Boehm

University of Texas at Austin

Niklas Kroner

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: February 15, 2023

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 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; Monetary Policy; 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 (February 15, 2023). 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 Texas 78712
United States

T. Niklas Kroner (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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