Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/229104
Authors: 
Ferrari, Massimo Minesso
Kurcz, Frederik
Pagliari, Maria Sole
Year of Publication: 
2020
Series/Report no.: 
ECB Working Paper No. 2490
Abstract: 
In this paper, we apply textual analysis and machine learning algorithms to construct an index capturing trade tensions between US and China. Our indicator matches well-known events in the US-China trade dispute and is exogenous to the developments on global financial markets. By means of local projection methods, we show that US markets are largely unaffected by rising trade tensions, with the exception of those firms that are more exposed to China, while the same shock negatively affects stock market indices in EMEs and China. Higher trade tensions also entail: i) an appreciation of the US dollar; ii) a depreciation of EMEs currencies; iii) muted changes in safe haven currencies; iv) portfolio re-balancing between stocks and bonds in the EMEs. We also show that trade tensions account for around 15% of the variance of Chinese stocks while their contribution is muted for US markets. These findings suggest that the US-China trade tensions are interpreted as a negative demand shock for the Chinese economy rather than as a global risk shock.
Subjects: 
Trade Shocks
Machine Learning
Stock indexes
Exchange rates
JEL: 
D53
E44
F13
F14
C55
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-4407-6
Document Type: 
Working Paper

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