Introduction -- The monetary convergence hypothesis -- Evidence of monetary divergence -- From fiscal to monetary divergence -- Explaining divergence in the policy mix -- Illustrating partisan divergence in the policy mix -- Expanding the argument

In this paper, we study the effects of structural shocks that influence global risk - the main factor behind a "global capital flows cycle" - and how risk, in turn, is transmitted to capital flows. Our results show that not all the risk shocks driving the global financial cycle have the same...