The Global Financial Cycle: Quantities versus Prices

Eugenio Cerutti and Stijn Claessens ()

No 2024/158, IMF Working Papers from International Monetary Fund

Abstract: We quantify the importance of the Global Financial Cycle (GFCy) in domestic credit and various local asset prices and compare it with that in capital flows. Using 2000-2021 data for 76 economies and a simple methodology, we find that each respective series’ common factor and conventional US GFCy-drivers together typically explain about 30 percent of the variation in domestic credit, up to 40 percent in stock market returns, about 60 percent in house prices, and more than 75 percent in interest rates and government bond spreads. These median estimates much exceed the 25 percent for capital flows. Our findings help to put the existing literature into context and have important implications for economic and financial stability policies, notably for the usage of quantity tools (e.g., FX interventions) that impact asset prices.

Keywords: global financial cycle; credit; asset prices; capital flows; financial conditions; comovements; empirical; data; center; country; panel; fit; equity; bonds; FDI; credit; policy measures; macroprudential; capital flow management policies; Captial account; importance of the Global Financial Cycle; FX intervention; FX regime; term GFCy; equity price; structure model; Exchange rate arrangements; Housing prices; Global (search for similar items in EconPapers)
Pages: 36
Date: 2024-07-19
New Economics Papers: this item is included in nep-fdg and nep-ifn
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Working Paper: The Global Financial Cycle: Quantities versus Prices (2024)
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