Do news sentiment and the economic uncertainty caused by public health events impact macroeconomic indicators? Evidence from a TVP-VAR decomposition approach

Abstract

This study analyzes the connectedness effect among the News Headlines Sentiment Index (SI), Infectious Disease Equity Market Volatility Tracker (IDEMV), financial markets (financial stress (FS), crude oil future prices (WTI)), and macroeconomic indicators (economic index (WEI), 1-Month Treasury Constant Maturity rate (R)) for returns and volatility in the US. We employ a mixed approach consisting of the Diebold-Yilmaz framework in static analysis and time-varying parameter vector autoregressive (TVP-VAR) model in dynamic analysis. The most noteworthy findings of this study are that there is a strong interdependence between SI, IDEMV, and WEI, and that SI and IDEMV have greater contributions to WEI compared to its impact on FS, R, and WTI for the return system, but not for volatility.