What Drives Euro Area Financial Market Developments? The Role of US Spillovers and Global Risk

Financial asset prices contain a rich set of real-time information on the economy. To extract this information, it is crucial to understand driving factors behind financial market developments. In paper, we exploit daily cross-asset price movements in sign-restricted BVAR model analyse extent which euro area and US yields, equity prices, euro-US dollar exchange rate are jointly driven by monetary policy, macro global risk factors. A novelty that allow for cross-Atlantic spillovers while also accounting unique role system. Our results underline importance shifts sentiment understanding dynamics variables. Euro shocks transmit much less markets comparison, with being more important instead. Using as instruments Proxy-SVAR, demonstrate transmission macroeconomy depends underlying driver, thereby illustrating why matters look into first place.