How Do Business and Financial Cycles Interact?
55 Pages Posted: 26 Apr 2011
Date Written: April 2011
This paper analyzes the interactions between business and financial cycles using an extensive database of over 200 business and 700 financial cycles in 44 countries for the period 1960:1-2007:4. Our results suggest that there are strong linkages between different phases of business and financial cycles. In particular, recessions associated with financial disruption episodes, notably house price busts, tend to be longer and deeper than other recessions. Conversely, recoveries associated with rapid growth in credit and house prices tend to be stronger. These findings emphasize the importance of developments in credit and housing markets for the real economy.
Keywords: Business cycles, Economic models, Economic recession, Economic recovery, Financial sector, Fiscal policy, Monetary policy
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