Citation

Discussion Paper Details

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Title: Global financial cycles and risk premiums

Author(s): �scar Jord�, Moritz Schularick, Alan M. Taylor and Felix Ward

Publication Date: June 2018

Keyword(s): asset prices, equity return premium, financial centers, financial cycles and policy spillovers

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

Abstract: This paper studies the synchronization of financial cycles across 17 advanced economies over the past 150 years. The comovement in credit, house prices, and equity prices has reached historical highs in the past three decades. The sharp increase in the comovement of global equity markets is particularly notable. We demonstrate that fluctuations in risk premiums, and not risk-free rates and dividends, account for a large part of the observed equity price synchronization after 1990. We also show that U.S. monetary policy has come to play an important role as a source of fluctuations in risk appetite across global equity markets. These fluctuations are transmitted across both fixed and floating exchange rate regimes, but the effects are more muted in floating rate regimes.

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Bibliographic Reference

Jord�, �, Schularick, M, Taylor, A and Ward, F. 2018. 'Global financial cycles and risk premiums'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=12969