A0422
Title: Macroeconomic news and real activity
Authors: Michele Modugno - Federal Reserve Board (United States) [presenting]
Berardino Palazzo - FED Board (United States)
Abstract: A standard and well-accepted way to explain asset prices posits that the latter are the present discounted value of future dividend payments to shareholders. A large body of literature, starting with a prior study, shows that macroeconomic news is partially reflected in asset prices, hence cash flows and discount rates expectations must change following the release of unexpected macroeconomic news. What is the channel driving this response? The focus is on the firm-level response to macroeconomic news to explore how the latter shapes firm-level behaviour in the near and medium term. It is shown that following macro news firms adjust their financial and economic strategies. It is also shown that these micro behaviours have macro consequences. Indeed, it is shown that also macro variables react to macro news.
