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Global Financial Cycles and Risk Premiums

Oscar Jorda (), Moritz Schularick (), Alan Taylor () and Felix Ward ()
Additional contact information
Moritz Schularick: University of Bonn
Felix Ward: Erasmus University Rotterdam

IMF Economic Review, 2019, vol. 67, issue 1, 109-150

Abstract: Abstract This paper studies the synchronization of financial cycles across 17 advanced economies over the past 150 years. The comovement in credit, house prices, and equity prices has reached historical highs in the past three decades. While comovement of credit and house prices increased in line with growing real sector integration, comovement of equity prices has increased above and beyond growing real sector integration. The sharp increase in the comovement of global equity markets is particularly notable. We demonstrate that fluctuations in risk premiums, and not risk-free rates and dividends, account for a large part of the observed equity price synchronization after 1990. We also show that US monetary policy has come to play an important role as a source of fluctuations in risk appetite across global equity markets. These fluctuations are transmitted across both fixed and floating exchange rate regimes, but the effects are more muted in floating rate regimes.

Keywords: Financial cycles; Asset prices; Equity return premium; Policy spillovers; Financial centers (search for similar items in EconPapers)
JEL-codes: E50 F33 F42 F44 G12 N10 N20 (search for similar items in EconPapers)
Date: 2019
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Working Paper: Global financial cycles and risk premiums (2018) Downloads
Working Paper: Global Financial Cycles and Risk Premiums (2018) Downloads
Working Paper: Global Financial Cycles and Risk Premiums (2018) Downloads
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