A Neoclassical Model of the World Financial Cycle

Yan Bai, Patrick Kehoe, Pierlauro Lopez and Fabrizio Perri

No 33441, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Emerging markets face large and persistent fluctuations in sovereign spreads. To what extent are these fluctuations driven by local shocks versus financial conditions in advanced economies? To answer this question, we develop a neoclassical business cycle model of a world economy with an advanced country, the North, and many emerging market economies, the South. Northern households invest in domestic stocks, domestic defaultable bonds, and international sovereign debt. Over the 2008-2016 period, the global cycle phase, the North accounts for 68% of Southern spreads’ fluctuations. Over the whole 1994-2024 period, however, Northern shocks account for less than 20% of these fluctuations.

JEL-codes: F34 F41 F44 (search for similar items in EconPapers)
Date: 2025-02
New Economics Papers: this item is included in nep-dge and nep-fdg
Note: EFG IFM
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w33441.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
Working Paper: A Neoclassical Model of the World Financial Cycle (2025)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:33441

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w33441
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().