Which Global Cycle? A Stochastic Factor Selection Approach for Global Macro-Financial Cycles

28 Pages Posted: 15 Oct 2022 Last revised: 17 May 2024

See all articles by Tino Berger

Tino Berger

University of Goettingen (Göttingen) - Department of Economics

Sebastian Hienzsch

University of Goettingen (Göttingen) - Department of Economics

Date Written: May 14, 2024

Abstract

Instead of assuming a certain factor structure, we statistically test for the factor structure driving common global dynamics in macroeconomic and financial data by employing a stochastic factor selection approach. Using a sample of 16 developed countries from 1996Q1 to 2019Q4, we present strong empirical evidence of a global macro-financial cycle and an independent global financial cycle. Moreover, the global macro-financial cycle we estimate is essentially the global business cycle identified in the literature. It captures the common global macroeconomic dynamics and drives a significant share of the comovement in the financial sector. The remaining commonality in financial variables is driven by separate global financial cycles: the global credit cycle and the global capital flow cycle.

Keywords: Global macro-financial cycle, Global financial cycle, Global business cycle, Multilevel dynamic factor model, Bayesian, Model selection

JEL Classification: E44, F44, C52, C32

Suggested Citation

Berger, Tino and Hienzsch, Sebastian, Which Global Cycle? A Stochastic Factor Selection Approach for Global Macro-Financial Cycles (May 14, 2024). Available at SSRN: https://ssrn.com/abstract=4234459 or http://dx.doi.org/10.2139/ssrn.4234459

Tino Berger

University of Goettingen (Göttingen) - Department of Economics ( email )

Platz der Goettinger Sieben 3
Goettingen, 37073
Germany

Sebastian Hienzsch (Contact Author)

University of Goettingen (Göttingen) - Department of Economics ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
132
Abstract Views
763
Rank
415,676
PlumX Metrics