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

Last updated: December 2022

We provide empirical evidence on the effects of surprises about financial intermediaries’ net worth on the overall economy based on a high-frequency identification strategy. We measure financial shocks with changes in the market value of large US intermediaries’ net worth in a narrow window around their earnings announcements. Using these shocks, we estimate that a surprise decline of 1% in intermediaries’ net worth leads to a 0.2%–0.4% decrease in the market value of nonfinancial firms. These effects are more pronounced for firms with high default risk and low liquidity, and when the aggregate net worth of intermediaries is low.