The economic effects of the coronavirus outbreak, and the preventive measures adopted around the world, are still largely unknown. In addition, standard macroeconomic models based on fundamentals may be slow to adapt in this fast-changing environment. This column uses high-frequency data on dividend futures to evaluate the impact on growth expectations. Dividend growth and GDP growth expectations in the US and EU begin to deteriorate after the lockdown in Italy, and these effects are exacerbated by the travel restrictions imposed thereafter. The lower bound on dividend growth is as severe as during the Global Crisis, at least in the short run.

Many policymakers are concerned that fast trading has adverse effects on markets, although the existing evidence is ambiguous. This column argues that high-frequency trading can increase market efficiency and the quality of trade. By creating noise, fast trades may prevent traders with a herd mentality from pushing prices in one direction. 

While some studies suggest that financial globalisation increases volatility and leads to economic instability, others appear to show that it leads to more efficient stock markets, with higher returns but no increase in volatility. Using a new measure of financial globalisation, this column argues that, on average, it has no significant effect on stock market volatility in developed markets, but it decreases volatility in emerging and frontier markets, where domestic shocks are likely to play a relatively greater role.

Given the increasing number of regional trade agreements, economists have been estimating their effects on a wide range of outcomes. This column looks at stock market reactions to the implementation of the Canada-US free trade agreement to evaluate its effects on firms’ profits. Firm profits seem to be hurt by lower tariffs, but increase with cheaper access to intermediates and – for large firms – better access to the US market. The author estimates that CUSFTA increased the yearly profits of Canadian manufacturing by 1.2%.

In 2013, policymakers began discussing when and how to ‘taper’ the Federal Reserve’s quantitative easing policy. This column presents evidence on the effect of Fed officials’ public statements on emerging-market financial conditions. Statements by Chairman Bernanke had a large effect on asset prices, whereas the market largely ignored statements by Fed Presidents. Emerging markets with stronger fundamentals experienced larger stock-market declines, larger increases in credit default swap spreads, and larger currency depreciations than countries with weaker fundamentals.

How the costs and benefits of regional trade agreements are distributed is a controversial question among economists. CEPR DP8566 analyses the stock market response to a country's signing of an RTA. The authors find that the biggest 'bounce' occurs in a country's stock market when it signs an RTA with an already-strong trading partner, or when the country is poor.