Working Paper: CEPR ID: DP16580
Authors: Silvia Miranda-Agrippino; Hélène Rey
Abstract: We review the literature on the empirical characteristics of the global financial cycle and associated stylized facts on international capital flows, asset prices, risk aversion and liquidity in the financial system. We analyse the co-movements of global factors in asset prices and capital flows with commodity prices, international trade and world output as well as the sensitivity of different parts of the world to the Global Financial Cycle. We present evidence of the causal effects of the monetary policies of the US Federal Reserve, the European Central Bank and of the People's Bank of China on the Global Financial Cycle. We then assess whether the 2008 financial crisis has altered the transmission channels of monetary policies on the Global Financial Cycle. Finally, we discuss the theoretical modelling of the Global Financial Cycle and avenues for future research.
Keywords: monetary policy; spillovers; capital flows; commodity cycles; risk-taking; systemic risk
JEL Codes: E44; F32; F36
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| US Federal Reserve's monetary policy (E52) | GFC (F53) |
| tightening of US monetary policy (E52) | deterioration in global financial conditions (F65) |
| tightening of US monetary policy (E52) | contraction in private liquidity (G33) |
| tightening of US monetary policy (E52) | spike in the VIX index (E32) |
| ECB's monetary policy (E52) | GFC (F53) |
| PBoC's monetary policy (E52) | international trade and commodity prices (F19) |
| ECB's monetary policies (E52) | international financial conditions (F30) |