Global Financial Cycle
First published: 2015
Brief summary
NBER paper on global financial cycles and capital flows.
Article
The linked NBER paper describes a global financial cycle in capital flows, asset prices and credit growth. It reports that these variables co-move across countries and are associated with measures of global risk aversion such as the VIX.
The paper argues that countries receiving larger credit inflows tend to have asset markets that are more sensitive to the global cycle. The resulting movements need not correspond closely to each country’s domestic economic conditions.
Its empirical analysis identifies monetary policy in major financial centres as one influence on global bank leverage, capital flows and credit creation. During expansions, these mechanisms can contribute to asset-price increases and rapid credit growth.
The paper concludes that free capital mobility can restrict national monetary-policy independence even under floating exchange rates. This is a proposed macro-financial mechanism, not a fixed-period exchange-rate cycle, and its policy discussion includes macroprudential measures and capital-flow management.
Source details and credits
- Source / publisher: NBER
- Source type: Working paper
- URL type: WWW
- Credits: NBER
- URL: https://www.nber.org/papers/w21162