Gyrations in Financial Markets
29 Pages Posted: 16 Jul 2011
Date Written: March 2011
We document the main features of financial cycles using a comprehensive database of credit, housing and equity prices. We report four major results. First, financial cycles can be protracted and costly episodes. Second, they can feed off each other and worsen, becoming financial crises. Third, they tend to have a significant global component, as they are highly synchronized across countries. Finally, when they take place in tandem in many countries, they often lead to more costly outcomes. These findings, combined with the results of recent research, have important implications for the design of macroeconomic and financial sector policies.
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