Financial Cycles in Euro Area Economies: A Cross-Country Perspective

36 Pages Posted: 28 Mar 2018

See all articles by Davor Kunovac

Davor Kunovac

Croatian National Bank

Martin Mandler

Deutsche Bundesbank - Economics Department; University of Giessen - Department of Economics

Michael Scharnagl

Deutsche Bundesbank

Date Written: 2018

Abstract

We study the cross-country dimension of financial cycles for six euro area countries using three different methodologies: principal component analysis, synchronicity and similarity measures and wavelet analysis. We find that equity prices and interest rates display synchronization across countries similar to or exceeding that of real GDP. In contrast, our estimates show much lower cross-country synchronization of credit variables and house prices - bank lending to nonfinancial firms being an exception with relatively large cross-country co-movements. These results are robust across the different estimation methodologies. Concerning time-variation we find evidence for a decline in the extent of co-movements in house prices over time while comovements in the term spread have increased with the introduction of the European monetary union.

Keywords: financial cycles, band-pass filter, principal components, wavelet analysis

JEL Classification: C32, C38, E44, E51

Suggested Citation

Kunovac, Davor and Mandler, Martin and Scharnagl, Michael, Financial Cycles in Euro Area Economies: A Cross-Country Perspective (2018). Deutsche Bundesbank Discussion Paper No. 04/2018. Available at SSRN: https://ssrn.com/abstract=3151336

Davor Kunovac (Contact Author)

Croatian National Bank ( email )

Croatia

Martin Mandler

Deutsche Bundesbank - Economics Department ( email )

Wilhelm-Epstein-Strasse 14
60431 Frankfurt am Main
Germany

University of Giessen - Department of Economics ( email )

Licher Str. 62
Giessen, Hessen D-35394
Germany

Michael Scharnagl

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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