Global financial cycle, media coverage and currencies of emerging markets

Abstract We examine the interplay of global and domestic media sentiment and the global financial cycle with regard to effects on the exchange rates of emerging markets (EMs). We apply both linear and regime-switching models that employ various measures of media tone and media coverage and proxies for the global financial cycle. The results reveal a significant appreciation of the EMs’ currencies in response to domestic and global sentiment shocks as well as the general and pure global factors (risky asset prices). We also identify an asymmetric effect in which the impacts of domestic and global sentiments and global financial cycles on EM currencies are greater in the case of positive media coverage.