A tale of two financial cycles: domestic and global

Lecture by Claudio Borio, Head of the Monetary and Economic Department, at the University of Zürich, Zürich, 19 November 2019¹

Financial cycles of growing amplitude have fundamentally changed the nature of economic fluctuations since the early 1980s, influencing policy decisions. Two concepts have become increasingly popular: the global financial cycle and, simply, the financial cycle. This has created some confusion. The lecture clarifies the distinction, examines their analytical and empirical relationship, and draws the policy implications. This yields useful insights for understanding the workings of the global economy and of the international monetary and financial system as well as for the design of monetary and prudential policy.

¹ This presentation draws on joint work with Iñaki Aldasoro, Stefan Avdjiev and Piti Disyatat; see Aldasoro et al (2019). We are very grateful to Silvia Miranda-Agrippino and Hélène Rey for sharing their updated version of the global financial cycle. I would also like to thank Stijn Claessens for his comments and to Bat-el Berger and Maximilian Jager for excellent statistical assistance. Any errors are my sole responsibility. The views expressed are my own and not necessarily those of the BIS.