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Financial Cycles in Euro Area Economies: A Cross‐Country Perspective Using Wavelet Analysis

Author

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  • Martin Mandler
  • Michael Scharnagl

Abstract

We study the cross‐country dimension of financial cycles for six euro area countries using wavelet analysis. Estimated wavelet cohesions show that cycles in equity prices and interest rates display stronger synchronization across countries than real output cycles, whereas credit variables and house prices show lower cross‐country synchronization. We propose a wavelet‐based extension to the spectral envelope that is similar to a frequency‐based time‐varying principal component analysis. The country loadings show that, contrary to all other variables, cycles in loans to households and house prices in Germany and the Netherlands are negatively or less strongly correlated with the common cycles.

Suggested Citation

  • Martin Mandler & Michael Scharnagl, 2022. "Financial Cycles in Euro Area Economies: A Cross‐Country Perspective Using Wavelet Analysis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 84(3), pages 569-593, June.
    • Handle: RePEc:bla:obuest:v:84:y:2022:i:3:p:569-593
    DOI: 10.1111/obes.12481
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    References listed on IDEAS

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    2. Mugrabi, Farah & Rünstler, Gerhard, 2025. "Housing and Credit Cycles in Ireland," Research Technical Papers 16/RT/25, Central Bank of Ireland.
    3. Proaño, Christian R. & Quero Virla, Leonardo & Strohsal, Till, 2025. "How strong is the link between the global financial cycle and national macro-financial dynamics? A wavelet analysis," Journal of International Money and Finance, Elsevier, vol. 159(C).
    4. Martin Mandler & Michael Scharnagl, 2025. "Money Growth and Inflation—How to Account for the Differences in Empirical Results," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 44(3), pages 1009-1025, April.
    5. Andreani, Michele & Giri, Federico, 2024. "Mortgages, house prices, and business cycle dynamic: A medium-run exploration using the continuous wavelet transform," International Review of Economics & Finance, Elsevier, vol. 94(C).
    6. Forbes, Kristin & Ha, Jongrim & Kose, M. Ayhan, 2024. "Rate Cycles," CEPR Discussion Papers 19272, Centre for Economic Policy Research.
    7. Beltran, Daniel O. & Dalal, Vihar M. & Jahan-Parvar, Mohammad R. & Paine, Fiona A., 2024. "Optimizing composite early warning indicators," The North American Journal of Economics and Finance, Elsevier, vol. 74(C).

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