World Asset Markets and the Global Financial Cycle

Helene Rey and Silvia Miranda-Agrippino

No 10936, CEPR Discussion Papers from Centre for Economic Policy Research

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 (search for similar items in EconPapers)
JEL-codes: E44 E58 F30 F33 (search for similar items in EconPapers)
Date: 2015-11
New Economics Papers: this item is included in nep-ifn and nep-mac
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Citations: View citations in EconPapers (255)

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