The Global Financial Cycle: Quantities versus Prices
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Summary:
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.
Series:
Working Paper No. 2024/158
Subject:
Asset prices Balance of payments Capital flows Central bank policy rate Credit Exchange rate arrangements Financial services Foreign exchange Housing prices Money Prices
Frequency:
regular
English
Publication Date:
July 19, 2024
ISBN/ISSN:
9798400282867/1018-5941
Stock No:
WPIEA2024158
Format:
Paper
Pages:
36
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