How Do Business and Financial Cycles Interact?

55 Pages Posted: 26 May 2011

See all articles by Stijn Claessens

Stijn Claessens

Bank for International Settlements (BIS)

M. Ayhan Kose

World Bank; Brookings Institution; Centre for Economic Policy Research (CEPR); Australian National University (ANU)

Marco E. Terrones

International Monetary Fund (IMF)

Date Written: May 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: asset busts, booms, credit crunches, financial crises, recessions, recoveries

JEL Classification: E32, E44, E51, F42

Suggested Citation

Claessens, Stijn and Kose, M. Ayhan and Terrones, Marco E., How Do Business and Financial Cycles Interact? (May 2011). CEPR Discussion Paper No. DP8396, Available at SSRN:

Stijn Claessens (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel

M. Ayhan Kose

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Brookings Institution

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

Centre for Economic Policy Research (CEPR)

United Kingdom

Australian National University (ANU)

Canberra, Australian Capital Territory 2601

Marco E. Terrones

International Monetary Fund (IMF) ( email )

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


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