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The predictive content of financial cycle measures for output fluctuations


  • Tim Ng


The financial cycle refers to fluctuations in perceptions and attitudes about financial risk over time. It is often marked by swings in credit growth, asset prices, terms of access to external funding, and other financial developments. A single measure that summarised such indicators would simplify analysis of the financial cycle, with benefits for both systemic risk assessment and stabilisation policy. It is not obvious, however, how best to select and combine the many potentially relevant indicators or how the usefulness of the resulting measure might be assessed. One criterion is predictive power. This special feature reviews the power of three differently composed measures to predict output fluctuations up to two years ahead. One of the measures is found to have substantial predictive content for output forecasting at short horizons. However, this result seems to arise mainly from the inclusion of indicators strongly related to actual financial system stress, rather than from swings in more generalised perceptions and attitudes about financial risk.

Suggested Citation

  • Tim Ng, 2011. "The predictive content of financial cycle measures for output fluctuations," BIS Quarterly Review, Bank for International Settlements, June.
  • Handle: RePEc:bis:bisqtr:1106g

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    References listed on IDEAS

    1. Stéphanie Guichard & David Haugh & David Turner, 2009. "Quantifying the Effect of Financial Conditions in the Euro Area, Japan, United Kingdom and United States," OECD Economics Department Working Papers 677, OECD Publishing.
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    Cited by:

    1. Strohsal, Till & Proaño, Christian R. & Wolters, Jürgen, 2015. "Characterizing the Financial Cycle: Evidence from a Frequency Domain Analysis," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113143, Verein für Socialpolitik / German Economic Association.
    2. van Roye, Björn, 2011. "Financial stress and economic activity in Germany and the Euro Area," Kiel Working Papers 1743, Kiel Institute for the World Economy (IfW).
    3. repec:tpr:asiaec:v:16:y:2017:i:2:p:83-117 is not listed on IDEAS
    4. Aboura, Sofiane & van Roye, Björn, 2013. "Financial stress and economic dynamics: An application to France," Kiel Working Papers 1834, Kiel Institute for the World Economy (IfW).
    5. German Forero-Laverde, 2016. "Are All Booms and Busts Created Equal? A New Methodology for Understanding Bull and Bear Stock Markets," UB Economics Working Papers 2016/339, Universitat de Barcelona, Facultat d'Economia i Empresa, UB Economics.
    6. Park, Cyn-Young & Mercado, Rogelio V., 2014. "Determinants of financial stress in emerging market economies," Journal of Banking & Finance, Elsevier, vol. 45(C), pages 199-224.
    7. Borio, Claudio, 2014. "The financial cycle and macroeconomics: What have we learnt?," Journal of Banking & Finance, Elsevier, vol. 45(C), pages 182-198.
    8. Björn Roye, 2014. "Financial stress and economic activity in Germany," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 41(1), pages 101-126, February.
    9. Sun, Lixin & Huang, Yuqin, 2016. "Measuring the instability of China's financial system: Indices construction and an early warning system," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 10, pages 1-41.
    10. repec:rjr:romjef:v::y:2017:i:3:p:18-36 is not listed on IDEAS
    11. Mercè Sala-Rios & Teresa Torres-Solé & Mariona Farré-Perdiguer, 2016. "Credit and business cycles’ relationship: evidence from Spain," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 15(3), pages 149-171, December.
    12. Guido Bulligan & Lorenzo Burlon & Davide Delle Monache & Andrea Silvestrini, 2017. "Real and financial cycles: estimates using unobserved component models for the Italian economy," Questioni di Economia e Finanza (Occasional Papers) 382, Bank of Italy, Economic Research and International Relations Area.
    13. Olaolu Richard Olayeni, 2016. "Causality in Continuous Wavelet Transform Without Spectral Matrix Factorization: Theory and Application," Computational Economics, Springer;Society for Computational Economics, vol. 47(3), pages 321-340, March.
    14. Łukasz Lenart & Mateusz Pipień, 2015. "Empirical Properties of the Credit and Equity Cycle within Almost Periodically Correlated Stochastic Processes - the Case of Poland, UK and USA," Central European Journal of Economic Modelling and Econometrics, CEJEME, vol. 7(3), pages 169-186, September.

    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers


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