I am very happy that this project finally came out as a @FedResearch working paper. In the following, I provide a summary of the paper which might be of interest to you if you work on anything related to asset pricing and macroeconomics. Paper: 1/16

RT @alpsimsek_econ: 1/ New paper: "FCI-star" with Ricardo Caballero and @TomasCaravello. We introduce FCI*—the neutral level of financial c….

Chris and I had the pleasure of writing a nontechnical summary of our forthcoming @RevEconStudies paper ( in the @LSEUSAblog!.

literature has focused too much on it. Our results make clear it’s only part of the story. We have more details and results in the paper and the appendices. So please take a look! 17/17.

In summary: Because of the U.S.’s central position in the global financial system, news about its business cycle moves markets worldwide. For me, one key takeaway of our paper was this: Yes — US monetary policy matters, as past work shows. But the global financial cycle 16/17.

Lastly, the way stocks, bonds, and the VIX react points to a particularly strong effect on risk-premia — likely the dominant channel. This supports theories placing risk taking at the heart of the global financial cycle. 15/17.

However, while bond yields react to US macro news, the stock-bond co-movement doesn’t line up with systematic monetary policy reactions being the dominant channel of our main findings. Rather, expected Fed reactions seem to partially offset the spillovers of US macro news. 14/17.

This asymmetry — between how important US business cycle shocks are for global markets versus shocks from other countries — mirrors the asymmetry we observe for US monetary policy shocks, both in our analysis and in prior work. 13/17

✅In turns out, foreign macro news barely moves the US stock market. We also show that this asymmetry is not due to foreign news releases being less "timely" or of "lower quality". Hence, evidence points to the transmission of US-specific shocks. 12/17

Intuitively, if global common shocks.drove international business cycles and stock markets, news releases in other countries should.also be informative about the global state. 11/17.

One key question is whether these US macro releases reflect U.S.-specific shocks or global common shocks. We test that by seeing whether the US reacts to macro news from other countries. 10/17.

✅On average, US macro news explains 23 percent of the quarterly variation in foreign equity prices. It also explains a sizable share of the variation in the VIX and commodity prices — key indicators of global risk appetite. 9/17

We also show that the VIX and other commodities respond strongly to US news announcements. We then go beyond the high-frequency analysis to examine the explanatory power of U.S. macro news at lower frequencies. 8/17.

✅The foreign stock market reactions are also economically significant, in most cases comparable in magnitude to the US ones. 7/17

✅Markets not only respond, but move in the same direction; hence, US macro news generates co-movement across them — a key feature of the global financial cycle 6/17

The results we found were striking to us: .✅US news moves global stock prices almost immediately and highly significantly. For instance, stronger-than-expected US nonfarm payrolls push foreign stock prices up. 5/17

In this paper, we argue that US business cycle shocks are a key driving force of the Global Financial Cycle. We start by using intraday high-frequency data around scheduled US macro news releases (like nonfarm payrolls and inflation) to track how global markets react. 4/17

That makes it really hard to pin down what’s driving what. Yet, this is a crucial question. If we want to design policies to manage international financial spillovers, we need to understand what’s actually moving global markets. 3/17.

What causes global financial markets to move together? That is, what drives the Global Financial Cycle?. It sounds like a simple question, but it's actually econometrically tricky. Why? Because financial markets are highly interconnected and co-move almost instantaneously. 2/17.

I’m thrilled to share that our paper will finally be published in 𝐓𝐡𝐞 𝐑𝐞𝐯𝐢𝐞𝐰 𝐨𝐟 𝐄𝐜𝐨𝐧𝐨𝐦𝐢𝐜 𝐒𝐭𝐮𝐝𝐢𝐞𝐬!. Huge thanks to editor @SorryToBeKurt and the three anonymous referees for giving us a chance and helping us improve the paper along the way. Thread👇 1/17.

In summary: Investor attention is a crucial—and previously overlooked—driver of how macroeconomic news is priced in financial markets. I have more details and results in the paper. So please take a look! Also, feel free to reach out if you have comments and suggestions! 16/16.