Global Financial Cycle And The International Monetary Policy Coordination

Since the 1970 s,liberalization,integration and globalization have become the significant feature of world economy and finance.More and more countries have changed from a closed economy to an open economy.With the continuous improvement of financial liberalization and openness,the international capital is soaring.The countries' financial activities break through the original national boundary,which gradually increasing the dependence and permeability of them.On this basis,the global unified financial market and operation mechanism are formed.Also,a unified financial cycle is eventually evolved,which means global financial cycle.This paper describes the global financial cycle through theoretical and empirical perspectives.In terms of theoretical analysis,the operation of the global financial cycle is mainly affected by the international macroeconomic situation,peripheral countries,capital and market efficiency,social factors,innovation and non-cyclical factors such as sudden impact,but this do not change the decision-making role of the monetary policy in core country.At the same time,with the help of international capital and financial intermediaries,the global financial cycle transmits around the world through the quantity channels such as cross-border capital flow,credit and risk-taking,and the price channels such as interest rate,exchange rate and risk premium.In terms of the empirical situation,combining with the actual operation of the financial market in recent years,this paper uses the methods of time domain and frequency domain to demonstrate the correlation and synergy between the fluctuations of the variables in the major financial markets,which confirms the existence of the global financial cycle.Then,in order to deepen the understanding of the global financial cycle,this paper constructs the global financial cycle index,on the basis of eight indexes in the world's eight major financial markets,and interprets it with the actual operation of the global financial market in recent years.After that,by building VAR model,this paper demonstrates the impact mode and impact degree of the main factors of global financial cycle quantitatively.Also,using pulse analysis and taking the United Kingdom and representative developed countries and emerging economies as examples,we illustrate the spillover effects of the monetary policy from core country to the nations with floating exchange rate regime.The global financial cycle theory emphasizes that "The Impossible Trinity" evolved into a "dual paradox" under the process of financial integration.That means,as long as capital flow freely,the independence of a country's monetary policy is difficult to achieve,no matter which exchange rate regime—fixed one or floating one—is chosen by the country.Moreover,the new mode of economic and financial operation has changed the way of resource allocation and the financial development environment of the original closed countries.This put forward higher requirements of their economic system foundation and macro-control ability.As a “double-edged sword”,financial globalization promotes the benefit of the countries that have an open development model,but it also causes a huge impact on the stability of their financial market.Countries have paid a heavy price for this.The global financial crisis is the best example.Therefore,on the one hand,we need to re-examine the countries' policy combination,taking into account the importance of the domination of the monetary policy and the steady and healthy development of the financial market to a sovereign state.On the other hand,the formation of the global financial cycle strengthens the spillover effects of national policies.The effectiveness of a country's monetary policy depends not only on the situation of its own economy,but also on the implementation of policies on the other countries.It requires good cooperation between the monetary policies of each country to confirm the steady and orderly development of the world economy and finance.The issue of international coordination of monetary policy,which is never involved in the closed environment,becomes crucial.Timely and effective international monetary policy coordination has played a positive role in history.A trustworthy framework of international monetary policy coordination facilitates both the information communication and pre-negotiation of policy orientation among countries,eliminates misunderstandings,and enhances global benefits.It also helps the world's major economies to strengthen the regulation of the world financial system,and maintain the stability of the global financial market jointly.Basing on the reality of the current international community and the mainstream choice model,this paper constructs a multi-level international monetary policy coordination mechanism under the G20 framework,introduces its feasible coordination mode and content arrangement,and makes some suggestions to the coordination puzzle.In order to protect the coordination achievement maximally and build an “international safety net” comprehensively,we should focus on the construction of the global financial regulatory system.All of the international organizations should work for it.Last but not least,we put forward some feasible revision measures for G20 and IMF,which will contributes to the improvement of the international monetary policy coordination mechanism.