The Impossible Trinity and Financial Stability. The Incidence of Trilemma Regimes on the (In)stability of Stock Markets and Credit Aggregates (1922-2013)
This dissertation discusses the accumulation and unwinding of financial imbalances in stock markets and credit aggregates in advanced economies since the interwar years until the present. The project is framed within the literature that arose with the Great Financial Crisis (2007-09) and that, again...
| Autor: | |
|---|---|
| Tipo de recurso: | tesis doctoral |
| Estado: | Versión publicada |
| Fecha de publicación: | 2018 |
| País: | España |
| Institución: | CBUC, CESCA |
| Repositorio: | TDR. Tesis Doctorales en Red |
| OAI Identifier: | oai:www.tdx.cat:10803/663993 |
| Acceso en línea: | http://hdl.handle.net/10803/663993 |
| Access Level: | acceso abierto |
| Palabra clave: | Macroeconomia Macroeconomía Macroeconomics Cicles econòmics Ciclos económicos Business cycles Crisis financeres Crisis financieras Financial crises Borsa de valors Bolsa de valores Stock-exchange Accions (Borsa) Acciones Stocks Països desenvolupats Países desarrollados Developed countries Ciències Jurídiques, Econòmiques i Socials 336 |
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The Impossible Trinity and Financial Stability. The Incidence of Trilemma Regimes on the (In)stability of Stock Markets and Credit Aggregates (1922-2013) |
| title |
The Impossible Trinity and Financial Stability. The Incidence of Trilemma Regimes on the (In)stability of Stock Markets and Credit Aggregates (1922-2013) |
| spellingShingle |
The Impossible Trinity and Financial Stability. The Incidence of Trilemma Regimes on the (In)stability of Stock Markets and Credit Aggregates (1922-2013) Forero-Laverde, Germán Macroeconomia Macroeconomía Macroeconomics Cicles econòmics Ciclos económicos Business cycles Crisis financeres Crisis financieras Financial crises Borsa de valors Bolsa de valores Stock-exchange Accions (Borsa) Acciones Stocks Països desenvolupats Países desarrollados Developed countries Ciències Jurídiques, Econòmiques i Socials 336 |
| title_short |
The Impossible Trinity and Financial Stability. The Incidence of Trilemma Regimes on the (In)stability of Stock Markets and Credit Aggregates (1922-2013) |
| title_full |
The Impossible Trinity and Financial Stability. The Incidence of Trilemma Regimes on the (In)stability of Stock Markets and Credit Aggregates (1922-2013) |
| title_fullStr |
The Impossible Trinity and Financial Stability. The Incidence of Trilemma Regimes on the (In)stability of Stock Markets and Credit Aggregates (1922-2013) |
| title_full_unstemmed |
The Impossible Trinity and Financial Stability. The Incidence of Trilemma Regimes on the (In)stability of Stock Markets and Credit Aggregates (1922-2013) |
| title_sort |
The Impossible Trinity and Financial Stability. The Incidence of Trilemma Regimes on the (In)stability of Stock Markets and Credit Aggregates (1922-2013) |
| dc.creator.none.fl_str_mv |
Forero-Laverde, Germán |
| author |
Forero-Laverde, Germán |
| author_facet |
Forero-Laverde, Germán |
| author_role |
author |
| dc.contributor.none.fl_str_mv |
Pons Brias, M. A. Mur, Jesús Sudrià, Carles, 1953- Universitat de Barcelona. Departament d'Història Econòmica, Institucions, Política i Economia Mundial |
| dc.subject.none.fl_str_mv |
Macroeconomia Macroeconomía Macroeconomics Cicles econòmics Ciclos económicos Business cycles Crisis financeres Crisis financieras Financial crises Borsa de valors Bolsa de valores Stock-exchange Accions (Borsa) Acciones Stocks Països desenvolupats Países desarrollados Developed countries Ciències Jurídiques, Econòmiques i Socials 336 |
| topic |
Macroeconomia Macroeconomía Macroeconomics Cicles econòmics Ciclos económicos Business cycles Crisis financeres Crisis financieras Financial crises Borsa de valors Bolsa de valores Stock-exchange Accions (Borsa) Acciones Stocks Països desenvolupats Países desarrollados Developed countries Ciències Jurídiques, Econòmiques i Socials 336 |
| description |
This dissertation discusses the accumulation and unwinding of financial imbalances in stock markets and credit aggregates in advanced economies since the interwar years until the present. The project is framed within the literature that arose with the Great Financial Crisis (2007-09) and that, against the mainstream consensus at the time, posits the existence of a financial cycle best characterised by the joint evolution of asset prices and credit. As a theoretical framework, we build on the open macroeconomy trilemma which indicates that policymakers can choose two out of three desirable and competing goals: fixed exchange rates, free capital flows, and autonomous monetary policy. We construct exchange rate and capital control regimes, for twelve advanced economies, from several sources to identify whether the behaviour of the boom-bust cycle in asset prices and credit growth and the drivers of financial instability are contingent on changing institutional conditions. Additionally, we test for the existence of a global financial cycle, proxied by the United States, which may be driving the evolution of both dependent variables. In the first part of the dissertation which covers the literature review (chapter 1) and the data and methodology (chapter 2), we tackle the issue of measuring financial imbalances. To shift from the usual framework of financial crises towards the study of financial stability, we develop a new indicator for expansions and contractions in financial time series: the Local Bull Bear Indicator (LBBI). This technique, which constitutes the main methodological contribution of the dissertation, identifies above or below trend risk-adjusted returns, expressed as standard deviations. It allows for the identification of expansions and contractions to different time horizons, according to the persistence of shocks. As a data contribution, we offer a dating and characterisation of boom and bust phases in stock markets and credit aggregates, to different time horizons, for all the countries in the database. Regarding the empirical findings, the second part of the dissertation presents panel data evidence using a panel corrected standard errors model (PCSE) for stocks (chapter 3) and credit (chapter 4). First, regarding the literature on global financial integration, we find evidence of a global financial cycle proxied by the US stock market and credit aggregates. Secondly, we find that the relationship between the dependent variables and a selection of control variables and trilemma-associated covariates is contingent on the way in which countries resolve the macroeconomic trilemma at different times. Finally, regarding financial stability, we find that beyond price stability, the variables that drive LBBIs are contingent on the way countries resolve the macroeconomic trilemma at different moments in history. The third part of the dissertation presents time-series evidence for two case studies on the United Kingdom. Chapter 5 discusses whether the evolution of the stock market is contingent on domestic policy or trilemma regimes and finds that the usual story of global financial integration following a U-shape with peaks during the gold standard and the present-day inflation targeting regime requires nuance. The long-run co-movement between the stock market in the UK and the global cycle seems to peak in periods of heightened systemic risk such as the Second World War and the two oil shocks (1973, 1978). Finally, Chapter 6 finds that there is a financial cycle in the UK and that the causal relationship between stocks and credit for the UK is both time-varying and contingent on the regulatory framework in place. As the financial system becomes unregulated, credit growth seems to drive the behaviour in asset prices, allowing us to conclude, preliminarily, that while price stability is important, policymakers should include the evolution of credit aggregates in their policymaking function. |
| publishDate |
2018 |
| dc.date.none.fl_str_mv |
2018 2018 2018 |
| dc.type.none.fl_str_mv |
info:eu-repo/semantics/doctoralThesis info:eu-repo/semantics/publishedVersion |
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doctoralThesis |
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publishedVersion |
| dc.identifier.none.fl_str_mv |
http://hdl.handle.net/10803/663993 |
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http://hdl.handle.net/10803/663993 |
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Inglés |
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Inglés |
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info:eu-repo/semantics/openAccess |
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openAccess |
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646 p. application/pdf application/pdf |
| dc.publisher.none.fl_str_mv |
Universitat de Barcelona |
| publisher.none.fl_str_mv |
Universitat de Barcelona |
| dc.source.none.fl_str_mv |
TDX (Tesis Doctorals en Xarxa) reponame:TDR. Tesis Doctorales en Red instname:CBUC, CESCA |
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CBUC, CESCA |
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TDR. Tesis Doctorales en Red |
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TDR. Tesis Doctorales en Red |
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| _version_ |
1869420591260368896 |
| spelling |
The Impossible Trinity and Financial Stability. The Incidence of Trilemma Regimes on the (In)stability of Stock Markets and Credit Aggregates (1922-2013)Forero-Laverde, GermánMacroeconomiaMacroeconomíaMacroeconomicsCicles econòmicsCiclos económicosBusiness cyclesCrisis financeresCrisis financierasFinancial crisesBorsa de valorsBolsa de valoresStock-exchangeAccions (Borsa)AccionesStocksPaïsos desenvolupatsPaíses desarrolladosDeveloped countriesCiències Jurídiques, Econòmiques i Socials336This dissertation discusses the accumulation and unwinding of financial imbalances in stock markets and credit aggregates in advanced economies since the interwar years until the present. The project is framed within the literature that arose with the Great Financial Crisis (2007-09) and that, against the mainstream consensus at the time, posits the existence of a financial cycle best characterised by the joint evolution of asset prices and credit. As a theoretical framework, we build on the open macroeconomy trilemma which indicates that policymakers can choose two out of three desirable and competing goals: fixed exchange rates, free capital flows, and autonomous monetary policy. We construct exchange rate and capital control regimes, for twelve advanced economies, from several sources to identify whether the behaviour of the boom-bust cycle in asset prices and credit growth and the drivers of financial instability are contingent on changing institutional conditions. Additionally, we test for the existence of a global financial cycle, proxied by the United States, which may be driving the evolution of both dependent variables. In the first part of the dissertation which covers the literature review (chapter 1) and the data and methodology (chapter 2), we tackle the issue of measuring financial imbalances. To shift from the usual framework of financial crises towards the study of financial stability, we develop a new indicator for expansions and contractions in financial time series: the Local Bull Bear Indicator (LBBI). This technique, which constitutes the main methodological contribution of the dissertation, identifies above or below trend risk-adjusted returns, expressed as standard deviations. It allows for the identification of expansions and contractions to different time horizons, according to the persistence of shocks. As a data contribution, we offer a dating and characterisation of boom and bust phases in stock markets and credit aggregates, to different time horizons, for all the countries in the database. Regarding the empirical findings, the second part of the dissertation presents panel data evidence using a panel corrected standard errors model (PCSE) for stocks (chapter 3) and credit (chapter 4). First, regarding the literature on global financial integration, we find evidence of a global financial cycle proxied by the US stock market and credit aggregates. Secondly, we find that the relationship between the dependent variables and a selection of control variables and trilemma-associated covariates is contingent on the way in which countries resolve the macroeconomic trilemma at different times. Finally, regarding financial stability, we find that beyond price stability, the variables that drive LBBIs are contingent on the way countries resolve the macroeconomic trilemma at different moments in history. The third part of the dissertation presents time-series evidence for two case studies on the United Kingdom. Chapter 5 discusses whether the evolution of the stock market is contingent on domestic policy or trilemma regimes and finds that the usual story of global financial integration following a U-shape with peaks during the gold standard and the present-day inflation targeting regime requires nuance. The long-run co-movement between the stock market in the UK and the global cycle seems to peak in periods of heightened systemic risk such as the Second World War and the two oil shocks (1973, 1978). Finally, Chapter 6 finds that there is a financial cycle in the UK and that the causal relationship between stocks and credit for the UK is both time-varying and contingent on the regulatory framework in place. As the financial system becomes unregulated, credit growth seems to drive the behaviour in asset prices, allowing us to conclude, preliminarily, that while price stability is important, policymakers should include the evolution of credit aggregates in their policymaking function.Universitat de BarcelonaPons Brias, M. A.Mur, JesúsSudrià, Carles, 1953-Universitat de Barcelona. Departament d'Història Econòmica, Institucions, Política i Economia Mundial201820182018info:eu-repo/semantics/doctoralThesisinfo:eu-repo/semantics/publishedVersion646 p.application/pdfapplication/pdfhttp://hdl.handle.net/10803/663993TDX (Tesis Doctorals en Xarxa)reponame:TDR. Tesis Doctorales en Redinstname:CBUC, CESCAInglésADVERTIMENT. L'accés als continguts d'aquesta tesi doctoral i la seva utilització ha de respectar els drets de la persona autora. Pot ser utilitzada per a consulta o estudi personal, així com en activitats o materials d'investigació i docència en els termes establerts a l'art. 32 del Text Refós de la Llei de Propietat Intel·lectual (RDL 1/1996). Per altres utilitzacions es requereix l'autorització prèvia i expressa de la persona autora. En qualsevol cas, en la utilització dels seus continguts caldrà indicar de forma clara el nom i cognoms de la persona autora i el títol de la tesi doctoral. No s'autoritza la seva reproducció o altres formes d'explotació efectuades amb finalitats de lucre ni la seva comunicació pública des d'un lloc aliè al servei TDX. Tampoc s'autoritza la presentació del seu contingut en una finestra o marc aliè a TDX (framing). Aquesta reserva de drets afecta tant als continguts de la tesi com als seus resums i índexs.info:eu-repo/semantics/openAccessoai:www.tdx.cat:10803/6639932026-06-14T12:46:07Z |
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15.300724 |