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Does the Real Business Cycle Help Forecast the Financial Cycle?

Author

Listed:
  • Fredj Jawadi

    (LUMEN - Lille University Management Lab - ULR 4999 - Université de Lille)

  • Hachmi Ben Ameur

    (INSEEC - Institut des hautes études économiques et commerciales | School of Business and Economics)

  • Stephanie Bigou

    (ICM - Institut du Cerveau = Paris Brain Institute - AP-HP - Assistance publique - Hôpitaux de Paris (AP-HP) - INSERM - Institut National de la Santé et de la Recherche Médicale - CHU Pitié-Salpêtrière [AP-HP] - AP-HP - Assistance publique - Hôpitaux de Paris (AP-HP) - SU - Sorbonne Université - SU - Sorbonne Université - CNRS - Centre National de la Recherche Scientifique)

  • Alexis Flageollet

    (Natixis Asset Management - SAMS)

Abstract

This study investigates the relationship between the financial market and the real business cycle in the US from February 1987 to March 2016. Using different monthly time-series as proxies for the financial and macroeconomic cycles, we first specify the determinants and then build two indicators to measure the financial and real business cycles based on principal component analysis. We identify not only the main different cycles for each indicator but also measure the duration of the phases for each indicator. Second, we study the relationship between economic and financial indicators per cycle and per phase using a vector autoregressive model. Our findings show that the economic indicator is useful to forecast the financial, and that there exists a significant relationship between the financial and economic cycles that is actively stronger during the “expansion–growth” phase. This result enables investors and policymakers to better forecast the future dynamics of financial sector using the information provided by the analysis of the real business cycle.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Fredj Jawadi & Hachmi Ben Ameur & Stephanie Bigou & Alexis Flageollet, 2021. "Does the Real Business Cycle Help Forecast the Financial Cycle?," Post-Print hal-04478764, HAL.
    • Handle: RePEc:hal:journl:hal-04478764
    DOI: 10.1007/s10614-021-10193-8
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    JEL classification:

    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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