Business and financial cycles of major global economies

Perhaps the most important lesson that central banks and other regulators have learned from the global financial crisis is the need to ensure the stability of the financial system.2 The simultaneous peaks of the business and financial cycles have fully manifested the extent of the impact of financial stress on the real economy, i.e. GDP, consumption, investment and unemployment, highlighting the importance of macroprudential policy. This has led to the introduction of a number of new instruments to increase and ensure the resilience of the financial system. The crisis has also motivated central banks to incorporate the financial and banking sectors into their macroeconomic models. In the post-GFC world, business cycle volatility cannot be explained without taking the financial cycle into account. This article deals mainly with the practical aspects associated with the modelling of the business and financial cycles and the use of simple statistical filters. It also presents a comparison of the two cycles for the major global economies - USA, Japan, the UK, Germany and France.