Cross-border financial flows have expanded massively since the 1980s, to the extent that the net foreign assets of the advanced economies surged from around 70 percent of GDP in 1980 to over 400 percent in the run-up to the 2007 crisis.
How is the breakneck advance of financial integration affecting domestic monetary and financial conditions and the effectiveness of each country’s monetary policy implementation?
Global factors weigh heavily in the determination of the returns of risky assets, the rerouting of capital flows, credit growth and the leverage of financial intermediaries the world over. And this, in the speaker’s view, confirms the existence of a global financial cycle.
Pursuing this analysis, she provides evidence of her contention that U.S. monetary policy is a key lever of the global financial cycle, due, in part, to the dollar’s preeminence in international banking and financial markets. She also takes issue with the perceived economic wisdom, arguing that the U.S.’s choice of monetary policy affects the monetary and financial conditions of even those countries with floating exchange-rate regimes. Her talk will examine the implications of these findings for monetary policy transmission channels.
Professor of Economics
Aalto University, Helsinki
Managing editor of the Journal of the European Economic Association (JEEA)