A Comparison of the Statistical Properties of Financial Variables in the USA, UK and Germany Over the Business Cycle

Posted: 22 Sep 2001

See all articles by Elena Andreou

Elena Andreou

University of Cyprus - Department of Economics

Denise R. Osborn

The University of Manchester - School of Social Sciences; University of Tasmania

Marianne Sensier

University of Manchester

Abstract

This paper presents business cycle stylized facts for the US, UK and German economies. We examine whether financial variables (interest rates, stock market price indices, dividend yields and monetary aggregates) predict economic activity over the business cycle, and we investigate the nature of any non-linearities in these variables. Leading indicator properties are examined using cross-correlations for both the values of the variables and their volatilities. Our results imply that the most reliable leading indicator across the three countries is the interest rate term structure, although other variables also appear to be useful for specific countries. The volatilities of financial variables may also contain predictive information for production growth as well as production volatility. Non-linearities are uncovered for all financial series, especially in terms of autoregressive conditional heteroscedasticity effects. Strong evidence of mean non-linearity is also found for many financial series and this can be associated with business cycle asymmetries in the mean. This is the case for a number of American and British financial variables, especially interest rates, but the corresponding evidence for Germany is confined largely to the real long-term rate of interest.

Suggested Citation

Andreou, Elena and Osborn, Denise R. and Sensier, Marianne, A Comparison of the Statistical Properties of Financial Variables in the USA, UK and Germany Over the Business Cycle. Available at SSRN: https://ssrn.com/abstract=242838

Elena Andreou (Contact Author)

University of Cyprus - Department of Economics ( email )

75 Kallipoleos Street
P.O. Box 20537
1678 Nicosia
Cyprus
+357 2 892449 (Phone)
+357 2 892432 (Fax)

Denise R. Osborn

The University of Manchester - School of Social Sciences ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom

University of Tasmania ( email )

French Street
Sandy Bay
Tasmania, 7250
Australia

Marianne Sensier

University of Manchester ( email )

Economics, Arthur Lewis Building
Oxford Road
Manchester, M13 9PL
United Kingdom

HOME PAGE: http://www.socialsciences.manchester.ac.uk/disciplines/economics/about/staff/sensier/

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