Global Business and Financial Cycles: A Tale of Two Capital Account Regimes

An Event Study of COVID-19 Central Bank Quantitative Easing in Advanced and Emerging Economies

“…All country VARs except the US include the log of the nominal oil prices (P O t ) as a weakly exogenous variable-a market that was critically destabilized by its own dynamics in March and April 2020. In addition, these VAR models control for the contemporaneous value of four unobserved common factors, estimated as country-specific trade-weighted averages of the corresponding variable in all other countries in the GVAR: the international business cycle (y * it , as in Cesa-Bianchi et al (2020) and Kose et al (2003)), global monetary conditions and inflation (ρ S * it and π * it ), the world interest rate (ρ L * it ), and the global financial cycle (q * it ) as in Acalin and Rebucci (2020).…”

The macro-financial effects of international bank lending on emerging markets

“…Results are robust to alternative methods to extract factors.8 So while it could be sound to regress EMEs' outcomes on measures of the global financial cycle, the estimated coefficients should be interpreted carefully as they will capture the full effect of the shock including, for example, the effects on present and future global growth.9 We proxy the global financial cycle by the three most commonly used measures: the common factor in global risky asset prices(Rey, 2015;Miranda-Agrippino and Rey, 2015), the first principal component of capital flows(Cerutti et al, 2019) and the VIX(di Giovanni et al, 2019). SeeArregui et al (2018) andAcalin and Rebucci (2020) for recent contributions to global financial cycle measurement.…”