Economic news is the kind of information that impacts the everyday lives of readers and their communities. This can include unemployment, business investment and inflation data, reports on monetary policy or even details about the company’s quarterly earnings. In addition to reporting on financial markets, economic news can also inform the public about important social issues such as housing trends, job opportunities or societal changes.
Economic News
Basic economic thinking leads one to expect certain rela- tionships between economic news and asset prices, such as interest rates. For example, news of unexpected economic strength should lead to higher bond yields and should prompt the central bank to pursue tighter monetary policy than anticipated. Other economic news should have similar effects on stock prices or consumer confidence.
In many cases, however, the exact relationships are not well understood. This is because earlier studies of announcement effects typically defined “news” by comparing it to the predictions of an empirical forecasting model, which made the results dependent on the choice of model and could obscure real impact.
More recent research has used a new methodology to measure the effect of economic news. This approach, developed by Rigobon and Sack (2008), corrects for the measurement error that can occur when surveys of forecasts are conducted before the actual data release. This approach produces estimates of asset price responses that are consistent in sign and magnitude with those produced by the standard approach and also produce more precise intraday measures of the immediate effects of news.