How Do Business and Financial Cycles Interact?
Board of Governors of the Federal Reserve System (FRB); University of Amsterdam - Finance Group; Centre for Economic Policy Research (CEPR); Tinbergen Institute; European Corporate Governance Institute (ECGI)
M. Ayhan Kose
Development Prospects Group at the World Bank
Marco E. Terrones
International Monetary Fund (IMF)
CEPR Discussion Paper No. DP8396
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.
Number of Pages in PDF File: 55
Keywords: asset busts, booms, credit crunches, financial crises, recessions, recoveries
JEL Classification: E32, E44, E51, F42
Date posted: May 26, 2011