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.

Abstract

The euro area output gap plays a key part in the determination of the ECB's monetary policy stance. The actual transmission of common shocks that hit the euro area work through the member economies with possibly large and significant spillovers across the euro area. We adopt a multicycle version of the Beveridge-Nelson decomposition that allows to jointly estimate the output gaps of the nine largest euro area economies. Taking full account of the interlinkages across the euro area, we study the dynamics and transmission of a US financial shock. Distinguishing between the domestic and spillover effects of the common shocks, we can study how the aggregate behavior of the euro area output gap is explained by the effects of shocks on its components, i.e. the members' output gaps.