Which Global Cycle? A Stochastic Factor Selection Approach for Global Macro-Financial Cycles

Berger Tino () and Hienzsch Sebastian ()
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Berger Tino: 9375 University of Göttingen , Platz der Göttinger Sieben 3, 37073 Göttingen, Germany
Hienzsch Sebastian: 9375 University of Göttingen , Platz der Göttinger Sieben 3, 37073 Göttingen, Germany

Studies in Nonlinear Dynamics & Econometrics, 2025, vol. 29, issue 5, 541-559

Abstract: Instead of assuming a certain factor structure, we statistically test for the factor structure driving common global dynamics in macroeconomic and financial data by employing a stochastic factor selection approach. Using a sample of 16 developed countries from 1996Q1 to 2019Q4, we present strong empirical evidence of a global macro-financial cycle and an independent global financial cycle. Moreover, the global macro-financial cycle we estimate is essentially the global business cycle identified in the literature. It captures the common global macroeconomic dynamics and drives a significant share of the comovement in the financial sector. The remaining commonality in financial variables is driven by separate global financial cycles: the global credit cycle and the global capital flow cycle.

Keywords: global macro-financial cycle; global financial cycle; global business cycle; multilevel dynamic factor model; Bayesian; model selection (search for similar items in EconPapers)
JEL-codes: C32 C52 E44 F44 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1515/snde-2023-0093

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