Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/194596 
Year of Publication: 
2019
Series/Report no.: 
Kiel Working Paper No. 2122
Publisher: 
Kiel Institute for the World Economy (IfW), Kiel
Abstract: 
We analyze cyclical co-movement in credit, house prices, equity prices, and long-term interest rates across 17 advanced economies. Using a time-varying multi-level dynamic factor model and more than 130 years of data, we analyze the dynamics of co-movement at different levels of aggregation and compare recent developments to earlier episodes such as the early era of financial globalization from 1880 to 1913 and the Great Depression. We find that joint global dynamics across various financial quantities and prices as well as variable-specific global co-movements are important to explain fluctuations in the data. From a historical perspective, global co-movement in financial variables is not a new phenomenon, but its importance has increased for some variables since the 1980s. For equity prices, global cycles play currently a historically unprecedented role, explaining more than half of the fluctuations in the data. Global cycles in credit and housing have become much more pronounced and longer, but their importance in explaining dynamics has only increased for some economies including the US, the UK and Nordic European countries. We also include GDP in the analysis and find an increasing role for a global business cycle.
Subjects: 
financial cycles
global co-movement
dynamic factor models
time-varying parameters
macro-finance
JEL: 
C32
C38
E44
F44
F65
G15
N10
N20
Document Type: 
Working Paper

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