NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

World Asset Markets and the Global Financial Cycle

Silvia Miranda-Agrippino, Hélène Rey

NBER Working Paper No. 21722
Issued in November 2015
NBER Program(s):   AP   CF   IFM   ME

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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Document Object Identifier (DOI): 10.3386/w21722

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