
doi: 10.59576/sr.1094
handle: 10419/300473
Do global credit conditions affect local credit and business cycles? Using a large cross-section of equity and corporate bond market returns around the world, we construct a novel global credit factor and a global risk factor that jointly price the international equity and bond cross-section. We uncover a global credit cycle in risky asset returns, which is distinct from the global risk cycle. We document that the global credit cycle in asset returns translates into a global credit cycle in credit quantities, with a tightening in global credit conditions predicting extreme capital flow episodes and declines in the stock of country-level private debt. Furthermore, global credit conditions predict the mean and left tail of real GDP growth outcomes at the country level. Thus, the global pricing of corporate credit is a fundamental factor in driving local credit conditions and real outcomes.
return predictability, international capital flows, ddc:330, G15, corporate bond returns, global financial cycle, credit and real activity outcomes, F44, G12, F30
return predictability, international capital flows, ddc:330, G15, corporate bond returns, global financial cycle, credit and real activity outcomes, F44, G12, F30
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