IMF Working Papers

The Global Financial Cycle: Quantities versus Prices

By Eugenio M Cerutti, Stijn Claessens

July 19, 2024

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Format: Chicago

Eugenio M Cerutti, and Stijn Claessens. The Global Financial Cycle: Quantities versus Prices, (USA: International Monetary Fund, 2024) accessed December 26, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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.

Subject: Asset prices, Balance of payments, Capital flows, Credit, Exchange rate arrangements, Foreign exchange, Housing prices, Money, Prices

Keywords: Asset prices, Bonds, Capital flow management policies, Capital flows, Captial account, Center, Comovements, Country, Credit, Credit, Data, Empirical, Equity, Equity price, Exchange rate arrangements, FDI, Financial conditions, Fit, FX intervention, FX regime, Global, Global financial cycle, Housing prices, Importance of the Global Financial Cycle, Macroprudential, Panel, Policy measures, Structure model, Term GFCy

Publication Details

  • Pages:

    36

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2024/158

  • Stock No:

    WPIEA2024158

  • ISBN:

    9798400282867

  • ISSN:

    1018-5941

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