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How Do Business and Financial Cycles Interact?

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  • Marco Terrones
  • M. Ayhan Kose
  • Stijn Claessens

Abstract

This paper analyzes the interactions between business and financial cycles using an extensive database of over 200 business and 700 financial cycles in 44 countries for the period 1960:1-2007:4. Our results suggest that there are strong linkages between different phases of business and financial cycles. In particular, recessions associated with financial disruption episodes, notably house price busts, tend to be longer and deeper than other recessions. Conversely, recoveries associated with rapid growth in credit and house prices tend to be stronger. These findings emphasize the importance of developments in credit and housing markets for the real economy.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/88.

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Length: 54
Date of creation: 01 Apr 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/88

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Keywords: Economic models; Economic recession; Economic recovery; Financial sector; recessions; recession; financial cycles; financial crises; financial crisis; financial markets; credit booms; financial booms; banking crises; credit boom; severe financial crisis; severe financial crises; banking crisis; equity markets; global financial crisis; financial sector development; severe recessions; financial liberalization; nominal interest rate; financial system; financial globalization; equity market; deposit money banks; stock market; financial market; deposit money; international finance; financial intermediation; stock market cycles; financial regulation; financial indicators; financial structure; financial economics;

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