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Financial Cycle, Fed Rate Hike and Financial Crisis

【Authors】
LI Xuesong, LUO Chaoyang
【WorkUnit】
LI Xuesong (Institute of Industrial Economics of CASS, 100836)LUO Chaoyang (Graduate School of CASS, 102488)
【Abstract】

Based on the cross-country panel data from 1970 to 2017 of 154 major countries in the world, this paper puts financial cycle and Fed's interest rate hike into a unified framework and uses the panel Logit model to analyze the impact of these two factors on banking crisis, debt crisis and currency crisis systematically. The results show that the probability of various financial crises is significantly greater in the top or fall area of the financial cycle and the Fed rate hike periods. Therefore, in the rising stage of the financial cycle, all kinds of market entities should avoid excessive leverage, and in the top area they should adopt stable leverage and structural deleveraging strategies to avoid excessive fluctuation. They should maintain a reasonable external debt growth rate and maturity structure and a moderate foreign reserve level, and monitor capital flows dynamically to guard against financial risks caused by the Fed's interest rate hike.

 

JEL:E32, E44, G33

【KeyWords】
Financial Crisis, Financial Cycle, Fed's Interest Rate Hike