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The Information Content of Stress Test Announcements
We exploit institutional features of the U.S. banking stress tests to disentangle different types of information garnered by market participants when the stress test results are released. By examining the reaction of different asset prices, we find evidence that market participants value the stress test announcements not only for the information on possible future capital distributions but also for the signals about bank resilience. These results back the use of stress tests by central banks to inform the broader public about the soundness of the banking system.
Back to the Present: Learning about the Euro Area through a Now-casting Model
We build a model for simultaneously now-casting economic conditions in the euro area and its three largest member countries--Germany, France, and Italy. The model formalizes how market participants and policymakers monitor the euro area by incorporating all market moving indicators in real time. We find that area wide and country-specific data provide informative signals to now-cast the economic conditions in the euro area and member countries. The model provides accurate predictions of economic conditions in real time over a period that covers the past three recessions.