Which of the following is a characteristic of the 'Global Financial Cycle' hypothesis?
A.Capital flows are always driven by local pull factors
B.National financial conditions are completely independent of global factors
C.Only domestic monetary policy matters
D.Co-movements in capital flows, asset prices and credit growth across countries are driven in large part by global factors, especially US monetary policy
Explanation:
The global-financial-cycle hypothesis emphasises that fluctuations in global risk appetite, often linked to US monetary policy and the strength of the dollar, generate correlated movements in capital flows, credit and asset prices across many countries.
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