Research

Job Market Paper

"Global Financial Cycles since 1880" (jointly with Maik H. Wolters)

We analyze the evolving role and nature of global financial cycles over 130 years in terms of co-movement in credit growth, house prices, equity prices and long-term interest rates across 17 advanced economies. Using a flexible dynamic factor model, we find that both an aggregate financial cycle across sectors and variable-specific cycles at different frequencies are important to explain global co-movement. The estimated factors trace historic events well: during the Great Depression, the busts in global credit and GDP were particularly deep and prolonged, whereas during the recent Financial Crisis the bust in the aggregate global financial cycle was relatively more important. For equity prices, global cycles play a historically unprecedented role, explaining more than half of the fluctuations; for credit, house prices and interest rates, the role of global cycles is smaller and reached levels comparable to today during the early era of globalization from 1880 to 1913. There are linkages between global shocks in GDP and in financial variables, but their role has decreased since the early era of globalization.

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Publications

Potjagailo, G. (2017). Spillover effects from Euro Area Monetary Policy across Europe: A Factor-Augmented VAR approach. Journal of International Money and Finance (72), 127-147.

I analyze spillover effects from a Euro area monetary policy shock to fourteen European countries outside the Euro area. The analysis is based on a factor-augmented VAR model with two blocks, which exploits a large cross-country data set. After a Euro area monetary policy expansion, production increases in most non-Euro area countries, whereas short-term interest rates and financial uncertainty decline. These effects are on average comparable to the responses in the aggregate Euro area, but the size of spillover effects varies with country characteristics. Spillovers on production are larger in non-Euro area economies with higher trade openness, whereas financial variables react to a higher extent in countries with higher financial integration. Regarding the exchange rate regime, the "trilemma" in international macroeconomics is alive in European countries, as flexible exchange rates sooth spillover effects to the real economy. However, financial openness does lead to stronger monetary spillovers via financial markets suggesting that there is a trade-off between open capital markets and monetary independence.


Jannsen, N., Potjagailo, G. and M.H. Wolters (2019). Monetary policy during financial crises: Is the transmission mechanism impaired? International Journal of Central Banking (forthcoming).

The effects of monetary policy during financial crises differ substantially from those in normal times. Using a panel VAR for 20 advanced economies, we show that monetary policy has larger and quicker effects during financial crises on output and inflation, and also on various other macroeconomic variables like credit, asset prices, uncertainty and consumer confidence. The effects on output and inflation are particularly strong during the acute phase of financial crises when the economy is also in recession, while they are weaker during the subsequent recovery phase. We find differences in the size and the timing of monetary policy actions during the global financial crisis of 2008/2009 across countries that may have contributed to the different macroeconomic performance across countries.