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on International Finance |
| By: | Christoph E. Boehm (University of Texas, Austin) |
| Abstract: | We provide evidence for a causal link between the US economy and the global financial cycle. Using a unique intraday dataset, we show that US macroeconomic news releases have large and significant effects on global risky asset prices. Stock price indexes of 27 countries, commodity prices, and the VIX 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, these effects are persistent. US macroeconomic news explain up to 22% of the quarterly variation in foreign stock markets. The joint behavior of stock prices and long-term bond yields suggests that systematic monetary policy responses to news play a limited role for explaining the behavior of international stock markets. Instead, the evidence is consistent with a direct effect on investors' risk-taking capacity. Overall, our findings show that a byproduct of the United States' central position in the global financial system is that news about its business cycle have large effects on global financial conditions. |
| Keywords: | Global Financial Cycle; Macroeconomic announcements; International spillovers; Stock returns; VIX; Commodity prices; High-frequency event study |
| JEL: | E44 E52 F40 G12 G14 G15 |
| Date: | 2020–09–04 |
| URL: | http://d.repec.org/n?u=RePEc:mie:wpaper:677&r=all |
| By: | Jan J. J. Groen; Michael Nattinger; Adam I. Noble |
| Abstract: | We propose measures of financial market stress for forty-six countries and regions across the world. Our measures indicate that worldwide financial market stresses rose significantly in March following the widespread economic shutdowns in the wake of the COVID-19 pandemic. However, hardly anywhere in the world did these March peaks in financial stresses reach those seen during the trough of the 2007-09 Global Financial Crisis. Since March, financial market conditions normalized rapidly with financial market stresses around average levels. We also show that our financial stress measures have predictive power for the near-term economic outlook across most parts of the world, with the exception of China. A structural Bayesian VAR analysis indicates that historically, financial stress shocks, irrespective of the source of the shock, have significant impact on global economic activity, but in particular that emerging market economies are usually hit more severely than advanced economies. |
| Keywords: | financial markets; financial stress indices; emerging markets; advanced economies; SVAR |
| JEL: | C32 C51 E44 F30 F65 |
| Date: | 2020–09–04 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:88692&r=all |