Financial Intermediaries and the Macroeconomy: Evidence from a High-Frequency Identification

54 Pages Posted: 11 Jan 2022 Last revised: 26 Jun 2022

See all articles by Pablo Ottonello

Pablo Ottonello

University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)

Wenting Song

Government of Canada - Bank of Canada

Date Written: January 2022

Abstract

We provide empirical evidence of the causal effects of changes in financial intermediaries' net worth in the aggregate economy. Our strategy identifies financial shocks as high-frequency changes in the market value of intermediaries' net worth in a narrow window around their earnings announcements, based on U.S. tick-by-tick data. Using these shocks, we estimate that news of a 1-percent decline in intermediaries' net worth leads to a 0.2-0.4 percent decrease in the market value of nonfinancial firms. These effects are more pronounced for firms with high default risk and low liquidity and when the aggregate net worth of intermediaries is low.

Suggested Citation

Ottonello, Pablo and Song, Wenting, Financial Intermediaries and the Macroeconomy: Evidence from a High-Frequency Identification (January 2022). NBER Working Paper No. w29638, Available at SSRN: https://ssrn.com/abstract=4004851

Pablo Ottonello (Contact Author)

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Wenting Song

Government of Canada - Bank of Canada ( email )

234 Wellington Street
Ontario, K1A 0G9
Canada

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