Alternative measures for the global financial cycle: Do they make a difference?

Abstract

We developed several measures to analyze the global financial cycle employing dynamic factor models and data for 25 advanced and emerging countries spanning 1980 to 2019. These measures were assessed using the similarity and synchronicity metrics proposed by Mink et al. (Oxford Economic Papers 64, 217–236, 2012). The findings indicate a strong similarity and synchronization of global cycles in asset prices and capital flows, particularly evident during crisis episodes. Furthermore, we observe significant co-movement between our financial cycle measures and two literature-based measures that utilize top-down and bottom-up approaches. However, the VIX index shows a lower level of co-movement with our global financial cycle measures.