Financial Cycles: What? How? When?

43 Pages Posted: 19 May 2011

See all articles by Stijn Claessens

Stijn Claessens

Bank for International Settlements (BIS)

M. Ayhan Kose

Development Prospects Group at the World Bank

Marco E. Terrones

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2011

Abstract

This paper provides a comprehensive analysis of financial cycles using a large database covering 21 advanced countries over the period 1960:1-2007:4. Specifically, we analyze cycles in credit, house prices, and equity prices. We report three main results. First, financial cycles tend to be long and severe, especially those in housing and equity markets. Second, they are highly synchronized within countries, particularly credit and house price cycles. The extent of synchronization of financial cycles across countries is high as well, mainly for credit and equity cycles, and has been increasing over time. Third financial cycles accentuate each other and become magnified, especially during coincident downturns in credit and housing markets. Moreover, globally synchronized downturns tend to be associated with more prolonged and costly episodes, especially for credit and equity cycles. We discuss how these findings can guide future research on various aspects of financial market developments.

Keywords: asset busts, credit booms, credit cycles, crunches, equity prices, house prices

JEL Classification: E32, F42, G12, G15

Suggested Citation

Claessens, Stijn and Kose, M. Ayhan and Terrones, Marco E., Financial Cycles: What? How? When? (May 2011). CEPR Discussion Paper No. DP8379. Available at SSRN: https://ssrn.com/abstract=1846261

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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