Essays on the U.S. financial cycle: construction, real effects and cross-border spill-overs

Financial cycle research suggests that policymakers should be more concerned with the medium and long run, relative to concerns linked to business cycle movements. Within that horizon, policy challenges are to address financial imbalances such as stock overhang problems and in general to prevent the built-up of financial system's vulnerabilities. This thesis focuses on constructing a measure for the US financial cycle summarized by household and corporate sentiment. We proceed to examine two channels how investor sentiment may be transmitted to the US manufacturing industries’ investment. As investor sentiment and financing conditions improve, this may increase investment for growth industries financed with equity and for external finance dependent industries financed with debt. Since the US is a global economy, its cyclical fluctuations spill over to other countries. Our study investigates short and long run cross-border effects of US on Mexican macroeconomic indicators. We perform sub-sample comparison to examine US business cycle effects on Mexico in the late NAFTA period.