logarithmic growth rates of real GDP, CPI, and real credit, along with the level of short-term interest rates are used in the SVAR. First differencing is quite standard, but following, for example, Clarida and Gali (1994) , and Peersman (2005) , the level of interest rates are used. Real credit is defined as the stock of credit scaled by CPI. The creditseries are from the IMF’s IFS database (IFS line 22d and line 42d, when a sufficiently long time series was available). This corresponds to the aggregate claims on the private sector by deposit money banks and is quite
Sophia Chen, Mrs. Paola Ganum, and Mr. Pau Rabanal
deflating the nominal series by the GDP deflator. 9 To exclude extreme values, we winsorize all macroeconomic and financial variables at the 2 percent and 98 percent levels.
The financial variables we consider are credit, house prices, and the financial account balance. Creditseries are taken from the IFS and are defined as “claims on the private sector by deposit money banks” 10 . We convert creditseries into real terms using the GDP deflator and calculate its annual growth rate. House prices are obtained from the OECD, the Bank of International Settlements (BIS
We estimate world cycles using a new quarterly dataset of output, credit and asset prices assembled using IMF archives and covering a large set of advanced and emerging economies since 1950. World cycles, both real and financial, exist and are generally driven by US shocks. But their impact is modest for most countries. The global financial cycle is also much weaker when looking at credit rather than asset prices. We also challenge the view that syncronization has increased over time. Although this is true for prices (goods and assets), this not true for quantities (output and credit). The world business and credit cycles were as strong during Bretton Woods (1950–1972) as during the Globalization period (1984-2006). For most countries, the way their output co-moves with the rest of the world has changed little over the last 70 years. We discuss the reasons behind these new findings and their policy implications for small open economies.