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Measuring financial cycles in a model-based analysis: Empirical evidence for the United States and the euro area

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  • Galati, Gabriele
  • Hindrayanto, Irma
  • Koopman, Siem Jan
  • Vlekke, Marente

Abstract

We adopt an unobserved components time series model to extract financial cycles for the United States and the five largest euro area countries over the period 1970–2014. We find that financial cycles can parsimoniously be estimated by house prices and total credit or the credit-to-GDP ratio. We show that these medium-term cycles are longer and have larger amplitudes than business cycles, and that their length and amplitude vary over time and across countries.

Suggested Citation

  • Galati, Gabriele & Hindrayanto, Irma & Koopman, Siem Jan & Vlekke, Marente, 2016. "Measuring financial cycles in a model-based analysis: Empirical evidence for the United States and the euro area," Economics Letters, Elsevier, vol. 145(C), pages 83-87.
    • Handle: RePEc:eee:ecolet:v:145:y:2016:i:c:p:83-87
    DOI: 10.1016/j.econlet.2016.05.034
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    More about this item

    Keywords

    Unobserved component time series model; Kalman filter; Maximum likelihood estimation; Band-pass filter; Medium-term cycles;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G01 - Financial Economics - - General - - - Financial Crises

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