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

Development Prospects Group at the World Bank

Marco E. Terrones

International Monetary Fund (IMF)

Date Written: May 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: 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: https://ssrn.com/abstract=1853125

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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