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How do business and financial cycles interact?

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  • Claessens, Stijn
  • Kose, M. Ayhan
  • Terrones, Marco E.

Abstract

This paper analyzes the interactions between business and financial cycles using an extensive database covering 44 countries for the period 1960:1–2010:4. Our analysis shows that there are strong linkages between the different phases of business and financial cycles. In particular, recessions associated with financial disruptions, notably house and equity price busts, tend to be longer and deeper than other recessions. Conversely, while recoveries following asset price busts tend to be weaker, recoveries associated with rapid growth in credit and house prices are often stronger. These findings emphasize the importance of financial market developments for the real economy.

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  • Claessens, Stijn & Kose, M. Ayhan & Terrones, Marco E., 2012. "How do business and financial cycles interact?," Journal of International Economics, Elsevier, vol. 87(1), pages 178-190.
    • Handle: RePEc:eee:inecon:v:87:y:2012:i:1:p:178-190
    DOI: 10.1016/j.jinteco.2011.11.008
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    More about this item

    Keywords

    Credit crunches; Asset busts; Booms; Recessions; Recoveries; Financial crises;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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