Citation

Discussion Paper Details

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Title: World Asset Markets and the Global Financial Cycle

Author(s): Silvia Miranda-Agrippino and H�l�ne Rey

Publication Date: November 2015

Keyword(s): Bayesian VAR, dynamic factor model, international financial flows and monetary policy

Programme Area(s): Financial Economics, International Macroeconomics and Finance and Monetary Economics and Fluctuations

Abstract: We find that one global factor explains an important part of the variance of a large cross section of returns of risky assets around the world. Using a model with heterogeneous investors, we interpret the global factor as reflecting aggregate realised variance and the time-varying degree of market-wide risk aversion. A medium-scale Bayesian VAR allows us to analyse the workings of the "Global Financial Cycle", i.e. the interaction between US monetary policy, real activity and global financial variables such as credit spreads, cross-border credit flows, bank leverage and the global factor in asset prices. We find evidence of large monetary policy spillovers from the US to the rest of the world.

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Bibliographic Reference

Miranda-Agrippino, S and Rey, H. 2015. 'World Asset Markets and the Global Financial Cycle'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10936