Working Paper

The US, Economic News, and the Global Financial Cycle

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.

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;

https://doi.org/10.17016/IFDP.2023.1371

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: International Finance Discussion Papers

Publication Date: 2023-02-25

Number: 1371