Are business and credit cycles synchronised internally or externally?

In this study we aim to assess the synchronisation of business and financial cycles at internal and international levels using a long-term series spanning almost half a century that includes multiple countries that account for almost 60% of the global gross domestic product. To identify international tendencies among credit and output cycles, we perform cycle synchronisation calculations based on wavelet analysis. Then, we build clusters to assess the existence of global patterns among cycles. Our results suggest that the pre-crisis period was one of internal synchronisation between financial and output cycles across countries, while the post-crisis period has been marked by international synchronisation. Our findings confirm the existence of one global financial cycle. Additionally, we find that the largest financial cycle is mostly driven by a global factor, which raises doubts about the effectiveness of domestically-conducted macroprudential policy and highlights the need for international cooperation among policymakers.