World Asset Markets and the Global Financial Cycle
Year: 2015
Type: preprint
Abstract: We nd that one factor explains an important part of the variance of a large cross section of returns of risky assets around the world. This factor can be interpreted as reecting the time-varying degree of market wide risk aversion and aggregate volatility. Importantly, we show, using a large Bayesian VAR, that US monetary policy is a driver of this factor in risky asset prices, the term spread and measures of the risk premium. US monetary policy is also a driver of US and European banks leverage, credit growth in the US and abroad and cross-border credit ows. Our large Bayesian VAR allows us to avoid the problem of omitted variables bias and, for the rst time, to study in detail the workings of the global nancial cycle, i.e. the interactions between US monetary policy, nancial variables and real activity.
Source: SSRN Electronic Journal
Authors: Hélène Rey, Silvia Miranda‐Agrippino
Institutions: London Business School, Bank of England
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2175910548