Good News Travels Fast - Global Demand Shocks, Oil Futures, and Emerging Markets Dynamics

Oct 12, 2026

Uploaded by Eliana

The paper examines how unexpected aggregate demand developments are transmitted across the global economy, emphasizing their effects on emerging market economies (EMEs). It proposes a new high-frequency external instrument based on changes in oil futures prices around US and Euro Area labor market announcements. Using a proxy-SVAR framework, results show global demand shocks raise world industrial production, reduce oil inventories, lower uncertainty, and improve financial conditions, with trade exposure driving cross-country heterogeneity in output, inflation, real exchange rates, and sovereign risk responses.

LanguageEnglish

CategoryGeneral

FormatPDF

Pages42

Reading Time15 min

AccessFree to download

Abstract

Introduction

Motivation and empirical challenge

Identification approaches

High-frequency external instrument strategy

Good News Travels Fast: Global Demand Shocks, Oil Futures, and Emerging Markets Dynamics * Felipe Beltrn Central Bank of Chile [fbeltran@bcentral.cl](fbeltran@bcentral.cl) Manuel Escobar International Monetary Fund [mescobarpacheco@imf.org](mescobarpacheco@imf.org) David Coble International Monetary Fund [dcoble@imf.org](dcoble@imf.org) Felipe Rojas International Monetary Fund [frojas2@imf.org](frojas2@imf.org) October 27, 2025 Abstract In this paper we study how aggregate demand surprises affect and propagate to the global economy, with particular attention to their impact on Emerging Market Economies (EMEs) . To do so, we introduce a new high-frequency external instrument to identify global demand shocks: the sensitivity of oil futures prices around labor market announcements from the US and the Euro Area, two events that consistently trigger strong revisions in global growth expectations across financial markets. Using a proxy-SVAR framework, our results suggest that a global demand shock has positive effects on world industrial production, reduces oil inventories and global uncertainty, and improves financial conditions. In EMEs, upward revision in macroeconomic outlook leads to higher industrial production and inflation, real exchange rate appreciation, and lower EMBI spreads. When the sample is split between oil-importers and exporters, we observe results consistent with the role of external trade exposure in shaping transmission, heterogeneity in the magnitude and persistence of output, inflation, real exchange rates, and sovereign risk responses. These results are consistent with theoretical expectations and the related literature. Our findings offer a credible empirical strategy for isolating global demand shocks and have direct implications for empirical macroeconomic modeling of emerging market economies. Keywords: Proxy SVAR; oil futures prices; global demand shocks; Emerging Markets; highfrequency identification; labor reports releases. JEL Classification: C3; E4; E6; F3; Q4. *We acknowledge the thoughtful comments of Jorge Miranda-Pinto, Mathieu Pedemonte, Cezar Santos, Luciana Juvenal, Martin Stuermer, Martin Sommer, and participants in seminars held at the International Monetary Fund, the Inter-American Development Bank and the Central Bank of Chile. The views expressed are those of the authors and do not necessarily represent the views of the Central Bank of Chile, the International Monetary Fund or either of both board members and management. Any errors and typos are our own. 1 Introduction Understanding the drivers of global demand fluctuations is central to macroeconomic research and policy. Global demand shocks affect industrial production, trade flows, commodity markets, and asset prices across countries, and are particularly consequential for emerging market economies (e.g. Boz, Gopinath, and Plagborg-Møller (2017); Sungurtekin Hallam (2022); Bems, Johnson, and Yi (2010)) . Yet identifying the drivers and isolating these shocks remains empirically challenging, as global demand reflects a complex mix of monetary and fiscal policies, financial conditions, and expectations about future growth, often intertwined with endogenous macroeconomic dynamics. While structural models provide useful frameworks to interpret global co-movements, they typically rely on strong identifying assumptions or slow-moving aggregate indicators, limiting their ability to capture exogenous and timely shifts in global demand. The empirical challenge lies in identifying a source of variation that captures unanticipated changes in global economic activity without being confounded by other structural shocks. Standard SVARs often rely on long-run or timing restrictions (e.g., Blanchard and Quah (1989); Christiano, Eichenbaum, and Evans (1999)), which can be difficult to defend in a global setting with overlapping policy regimes and simultaneous cross-country interactions. These challenges have motivated t

FAQs

How does the paper identify global demand shocks?

It introduces a high-frequency external instrument using changes in oil futures prices within a narrow window around major US and Euro Area labor market announcements.

What does the proxy-SVAR analysis find for the global economy?

A global demand shock is found to positively affect world industrial production, reduce oil inventories, reduce global uncertainty, and improve financial conditions.

How do results differ for emerging market economies?

For EMEs, upward revisions in the macroeconomic outlook are associated with higher industrial production and inflation, real exchange rate appreciation, and lower EMBI spreads, with heterogeneity linked to whether economies are oil importers or exporters.

Oct 12, 2026

Uploaded by Eliana