Danielsson, Jon ORCID: 0009-0006-9844-7960, Valenzuela, Marcela and Zer, Ilknur (2022) The impact of risk cycles on business cycles: a historical view. Review of Financial Studies, 36 (7). 2922 - 2961. ISSN 0893-9454
Text (Danielsson_impact-of-risk-cycles--published)
- Published Version
Available under License Creative Commons Attribution. Download (913kB) |
Abstract
We investigate the effects of financial risk cycles on business cycles, using a panel spanning 73 countries since 1900. Agents use a Bayesian learning model to form their beliefs about risk. We construct a proxy of these beliefs and show that perceived low risk encourages risk-taking, augmenting growth at the cost of accumulating financial vulnerabilities, and, therefore, a reversal in growth follows. The reversal is particularly pronounced when the low-risk environment persists and credit growth is excessive. Global risk cycles have a stronger effect on growth than local risk cycles via their impact on capital flows, investment, and debt-issuer quality.
Item Type: | Article |
---|---|
Official URL: | https://academic.oup.com/rfs |
Additional Information: | © 2022 The Author(s). |
Divisions: | Finance Systemic Risk Centre |
Subjects: | H Social Sciences > HG Finance H Social Sciences > HC Economic History and Conditions |
JEL classification: | F - International Economics > F3 - International Finance > F30 - General G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation N - Economic History > N1 - Macroeconomics and Monetary Economics; Growth and Fluctuations > N10 - General, International, or Comparative N - Economic History > N2 - Financial Markets and Institutions > N20 - General, International, or Comparative |
Date Deposited: | 21 Nov 2022 12:09 |
Last Modified: | 10 Oct 2024 21:42 |
URI: | http://eprints.lse.ac.uk/id/eprint/117384 |
Actions (login required)
View Item |