Financial Cycles, U.S. Monetary Policy, and Media Sentiment

Abstract

In this paper, I assess the impact of changes in international media tone on synchronized fluctuations in financial aggregates (also known as financial cycles) across 29 advanced and emerging market economies. Media tone captures how news articles frame economic and financial information, which may in turn affect investors' risk preferences. I construct a global media tone index using methods from natural language processing and a database of 8 million news articles. Results indicate that global media tone is strongly correlated with an underlying common factor in stock prices, bond yields, and credit growth across countries. Controlling for macroeconomics fundamentals and policy actions, I find that U.S. monetary policy is the most important driver of the global financial cycle, while media tone accounts for a relatively sizeable fraction of its variance.

Hamza Zahid

Economist

My research interests include international economics, macroeconomics, energy and environmental economics, and applied econometrics.