You are not permitted to access the full text of articles.
If you have any questions about permissions,
please contact the Society.
νμλμ λ Όλ¬Έ μ΄μ© κΆνμ΄ μμ΅λλ€.
κΆν κ΄λ ¨ λ¬Έμλ ννλ‘ λΆν λλ¦½λλ€.
|[ Article ]|
|Seoul Journal of Economics - Vol. 33, No. 3, pp.395-435|
|ISSN: 1225-0279 (Print)|
|Print publication date 31 Aug 2020|
|Received 08 Aug 2020 Accepted 08 Aug 2020|
|Global Business and Financial Cycles: A Tale of Two Capital Account Regimes|
Julien Acalin ; Alessandro Rebucci
|Julien Acalin, Department of Economics, Johns Hopkins University, U.S. (email@example.com)|
|Alessandro Rebucci, Corresponding Author, Johns Hopkins University Carey Business School, CEPR and NBER, Tel: +1-410-234-9472 (firstname.lastname@example.org)|
JEL Classification: C38, E44, F44, G15
Using a new equity price-based measure of the global financial cycle, this paper evaluates the relative importance of global financial shocks for quarterly equity returns and output growths in a large sample of advanced and emerging economies, as well as in South Korea and China–two countries on different sides of the trilemma triangle of international finance. We document that global financial shocks in both China and South Korea explain a substantial share of equity return variability (20 and 50 percent of total variance, respectively), but a much smaller portion of real output fluctuations (less than 10 percent in Korea and negligible in the case of China). We also find that the combination of a closer capital account and a more rigid exchange rate regime, as in China, is associated with some costs in terms of diversification opportunities quantified by very large exposures to domestic financial and real shocks, dwarfing the contribution of any other shock in the model. More surprisingly, the combination of a relatively open capital account and a flexible exchange rate, as in South Korea, not only is associated with a higher exposure to the global financial cycle than in China but also with a significant incidence of domestic financial shocks on output fluctuations.
|Keywords: Business Cycles, Equity returns, Global Financial Cycle, Factor-models, Panel VARs, China, South Korea
Paper prepared for the 2019 Seoul Journal of Economics International Symposium. We thank the editor, Soyoung Kim, and conference participants for helpful comments and suggestions. We are also grateful to M. Hashem Pesaran, Ambrogio Cesa-Bianchi, and Andrew Rose for discussions and comments. Remaining errors are ours.
|1.||Bai, J. and S. Ng. “Determining the Number of Factors in Approximate Factor Models” Econometrica 70 (2002): 191–221.
|2.||Bai, Y., F. Perri, and P. Kehoe. “World financial cycles,” 2019 Meeting Papers 1545, Society for Economic Dynamics (2019).|
|3.||Bailey, N., M. H. Pesaran, and L. V. Smith. “A multiple testing approach to the regularisation of large sample correlation matrices.” Journal of Econometrics 208 (2019): 507–534.
|4.||Cerutti, E., S. Claessens, and A. K. Rose. “How Important is the Global Financial Cycle? Evidence from Capital Flows,” NBER Working Papers 23699, National Bureau of Economic Research, Inc (2017).
|5.||Cesa-Bianchi, A., L. F. Cespedes, and A. Rebucci. “Global liquidity, house prices, and the macroeconomy: Evidence from advanced and emerging economies.” Journal of Money, Credit and Banking 47 (2015): 301–335.
|6.||Cesa-Bianchi, A., A. Ferrero, and A. Rebucci. “International credit supply shocks.” Journal of International Economics 112 (2018): 219–237.
|7.||Cesa-Bianchi, A., M. H. Pesaran, and A. Rebucci. “Uncertainty and Economic Activity: A Multicountry Perspective.” The Review of Financial Studies 33 (2019): 3393–3445.
|8.||Chamberlain, G. and M. Rothschild. “Arbitrage, Factor Structure, and Mean-Variance Analysis on Large Asset Markets,” Scholarly Articles 3230355, Harvard University Department of Economics (1982).
|9.||Chudik, A., M. H. Pesaran, and E. Tosetti. “Weak and strong cross-section dependence and estimation of large panels.” Econometrics Journal 14 (2011): C45–C90.
|10.||Colacito, R. and M. M. Croce. “Risks for the Long Run and the Real Exchange Rate” Journal of Political Economy 119 (2011): 153–181.
|11.||Engel, C. “Macroprudential Policy under High Capital Mobility: Policy Implications from an Academic Perspective.” Journal of the Japanese and International Economies 42 (2016): 162–172.
|12.||Erten, B., A. Korinek, and J. A. Ocampo. “Capital Controls: Theory and Evidence.” Journal of Economic Literature (forthcoming).|
|13.||Gourinchas, P.-O. “Monetary Policy Transmission in Emerging Markets: An Application to Chile,” in Monetary Policy and Global Spillovers:Mechanisms, Effects and Policy Measures, ed. by E. G. Mendoza, E. Pastén, and D. Saravia, Central Bank of Chile, vol. 25, chap. 08, 279–324, 1 ed (2018).|
|14.||Ha, J., M. A. Kose, C. Otrok, and E. S. Prasad. “Global Macro-Financial Cycles and Spillovers,” Working Paper 26798, National Bureau of Economic Research (2020).
|15.||Han, X. and S.-J. Wei. “International Transmissions of Monetary Shocks: Between a Trilemma and a Dilemma,” Journal of International Economics 110 (2018): 205–219.
|16.||Huo, Z., A. Levchenko, and N. Pandalai-Nayar. “Technology and Non-Technology Shocks: Measurement and Implications for International Comovement,” Unpublished manuscript (2015).|
|17.||Kapetanios, G., M. H. Pesaran, and S. Reese. “Detection of units with pervasive effects in large panel data models.” Journal of Econometrics (forthcoming).|
|18.||Lewis, K. K. and E. X. Liu. “Evaluating international consumption risk sharing gains: An asset return view.” Journal of Monetary Economics 71 (2015): 84–98.
|19.||Lucas, Robert E, J. “Asset Prices in an Exchange Economy.” Econometrica 46 (1978): 1429– 1445.
|20.||Ma, C., J. Rogers, and S. Zhou. “The Effect of the China Connect,” Manuscript (2019).
|21.||Miranda-Agrippino, S. and H. Rey. “U.S. Monetary Policy and the Global Financial Cycle.” The Review of Economic Studies, rdaa019 (2020).
|22.||Pesaran, H. H. and Y. Shin. “Generalized impulse response analysis in linear multivariate models,” Economics Letters 58 (1998): 17–29.
|23.||Pesaran, M. H. Time Series and Panel Data Econometrics, Oxford University Press, Oxford (2015).
|24.||Rebucci, A. and C. Ma. “Capital Controls: A Survey of the New Literature” (2020).
|25.||Rey, H. “Dilemma not trilemma: the global cycle and monetary policy independence,” Proceedings - Economic Policy Symposium - Jackson Hole 1–2 (2013).|
|26.||Ross, S. A. “The arbitrage theory of capital asset pricing.” Journal of Economic Theory 13 (1976): 341–360.
|27.||Sentana, E. “Did the EMS Reduce the Cost of Capital?” Economic Journal 112 (2002): 786–809.
|28.||Tesar, L. L. “Evaluating the gains from international risk sharing,” Carnegie-Rochester Conference Series on Public Policy 42 (1995): 95–143.
|29.||Zeev, N. B. “Capital Controls as Shock Absorbers.” Journal of International Economics 109 (2017): 43–67.
Editorial Office, Seoul Journal of Economics, Institute of Economic Research, Seoul National University 599 Gwanangno, Gwanak-gu, Seoul 151-746, Korea
Tel: +82-2-880-5434 | Fax: +82-2-888-4454 | E-mail: email@example.com
Copyright (c) 2020 SJE. All rights reserved.