How Do Business and Financial Cycles Interact?

55 Pages Posted: 26 Apr 2011

See all articles by M. Ayhan Kose

M. Ayhan Kose

affiliation not provided to SSRN

Stijn Claessens

Bank for International Settlements (BIS)

M. Ayhan Kose

Development Prospects Group at the World Bank

Marco E. Terrones

International Monetary Fund (IMF)

Date Written: April 2011

Abstract

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

Suggested Citation

Kose, M. Ayhan and Claessens, Stijn and Kose, M. Ayhan and Terrones, Marco E., How Do Business and Financial Cycles Interact? (April 2011). IMF Working Papers, Vol. , pp. 1-54, 2011. Available at SSRN: https://ssrn.com/abstract=1822954

M. Ayhan Kose

affiliation not provided to SSRN

Stijn Claessens (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

M. Ayhan Kose

Development Prospects Group at the World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Marco E. Terrones

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-4329 (Phone)

HOME PAGE: http://imf.org/external/np/CV/AuthorCV.aspx?AuthID=171

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