Financial Cycles Across G7 Economies: A View from Wavelet Analysis

64 Pages Posted: 22 Apr 2019

See all articles by Martin Mandler

Martin Mandler

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

Michael Scharnagl

Deutsche Bundesbank

Date Written: 2019

Abstract

We analyse the cross-country dimension of financial cycles by studying cyclical co-movements in credit, house prices, equity prices and interest rates across the G7 economies. We use wavelet-based statistics to assess at which frequencies cyclical fluctuations and their crosscountry co-movements are important and how these change over time. We show cycles in interest rates and equity prices to be at least as synchronised as cycles in real GDP while cycles in credit and house prices are less synchronised. As a result, cross-country common cycles in equity prices and long-term interest rates account for a larger share of the volatility of these variables at the country level than common cycles in credit aggregates and house prices. A cluster analysis shows a high degree of similarity in the spectral characteristics of cycles in interest rates and equity prices across all countries but less similarities for cycles in credit and house price. For credit and house price cycles country-specific developments turn out to be more important than the common cross-country cycles.

Keywords: financial cycles, wavelet analysis, cluster analysis, cross-country synchronisation

JEL Classification: C32, C38, E44, E51

Suggested Citation

Mandler, Martin and Scharnagl, Michael, Financial Cycles Across G7 Economies: A View from Wavelet Analysis (2019). Deutsche Bundesbank Discussion Paper No. 22/2019, Available at SSRN: https://ssrn.com/abstract=3422650

Martin Mandler (Contact Author)

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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