Working Paper: NBER ID: w30994
Authors: Christoph E. Boehm; T. Niklas Kroner
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: US economic news; global financial cycle; macroeconomic news; asset prices; risk-taking behavior
JEL Codes: E44; E52; F40; G12; G14; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| US macroeconomic news releases (E60) | global risky asset prices (G19) |
| positive surprise in US nonfarm payroll employment (J89) | stock prices in nearly all countries (G15) |
| US macroeconomic news (E60) | quarterly variation in foreign stock markets (G15) |
| US macroeconomic news (E60) | VIX (C58) |
| US macroeconomic news (E60) | commodity prices (Q02) |
| US macroeconomic news (E60) | risk-taking capacity of investors (G11) |
| US macroeconomic news (E60) | response of US S&P 500 index (G12) |