Financial Intermediaries and the Macroeconomy: Evidence from a High-Frequency Identification

Abstract We provide empirical evidence on how news about financial intermediaries’ net worth impacts the aggregate economy, using a high-frequency identification strategy. We measure “financial shocks” based on the idiosyncratic stock-price changes of large U.S. intermediaries in a narrow window around their earnings announcements. We document significant effects of these shocks on the stock price and borrowing costs of nonfinancial firms, as well as on macroeconomic variables. The effects are more pronounced for firms with low credit ratings and when the aggregate net worth of intermediaries is low.