The Financial Cycle Around the World in 2016

As the year is coming to a close, the financial economy in large parts of the world is characterised by high levels of uncertainty and central banks navigating through widely unknown territory. In this article, I want to take a brief look at the state of affairs in a few different economic areas and analyse potential implications for monetary policy decisions. For this purpose, a proxy for the financial cycle as developed by Drehmann et al. (2012) from the Bank for International Settlements (BIS) is presented as a visualisation tool. This concept captures cyclical fluctuations in both private credit and house prices. A high point represents above-trend volume of credit to the private non-financial sector and elevated asset prices. A low point on the other hand indicates a contracted credit and housing market (You can find a very brief description how the financial cycle is derived at the end of this article). Additionally, I consider some other important developments throughout the global financial economy. Continue reading “The Financial Cycle Around the World in 2016”