Drivers of the global financial cycle

John Rogers, Bo Sun and Wenbin Wu

Journal of International Economics, 2025, vol. 156, issue C

Abstract: Building on literature focused on the role of U.S. monetary policy in driving the global financial cycle, we quantify the relative importance of different shocks in an estimation framework that simultaneously identifies multiple shocks without timing or sign restrictions. Our analysis reveals significant roles for (i) U.S. corporate bond spreads, particularly the excess bond premium component, (ii) U.S. bank leverage, and (iii) the U.S. term premium. We additionally document a feedback loop that leads to significant amplification effects: widening U.S. corporate bond spreads trigger broad declines in global asset prices, which in turn lead to further tightening of U.S. spreads.

Keywords: Global financial cycle; Monetary policy; Financial shocks (search for similar items in EconPapers)
JEL-codes: E44 E52 G14 (search for similar items in EconPapers)
Date: 2025
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Chapter: Drivers of the Global Financial Cycle (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:156:y:2025:i:c:s0022199625000443

DOI: 10.1016/j.jinteco.2025.104088

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