World Asset Markets and the Global Financial Cycle
70 Pages Posted: 16 Nov 2015
There are 2 versions of this paper
Us Monetary Policy and the Global Financial Cycle
Date Written: November 2015
Abstract
We find that one global factor explains an important part of the variance of a large cross section of returns of risky assets around the world. Using a model with heterogeneous investors, we interpret the global factor as reflecting aggregate realised variance and the time-varying degree of market-wide risk aversion. A medium-scale Bayesian VAR allows us to analyse the workings of the "Global Financial Cycle", i.e. the interaction between US monetary policy, real activity and global financial variables such as credit spreads, cross-border credit flows, bank leverage and the global factor in asset prices. We find evidence of large monetary policy spillovers from the US to the rest of the world.
Keywords: Bayesian VAR, dynamic factor model, international financial flows, monetary policy
JEL Classification: E44, E58, F30, F33
Suggested Citation: Suggested Citation