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The synchronization of credit cycles

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  • Meller, Barbara
  • Metiu, Norbert

Abstract

This paper proposes a simple econometric procedure to test for the synchronization of credit cycles. Using a century of data for 14 advanced economies, we find that credit cycle synchronization dropped in the early 1920s from initially relatively high levels. Between the 1920s and the 1970s synchronization was overall low and concentrated within five, predominantly regional, clusters. However, synchronization has significantly increased in the post-Bretton Woods era and has become less associated with geographic proximity: Australia, Denmark, France, Italy, Japan, Norway, Spain, Switzerland, the UK, and the US form a single major credit cycle cluster since the 1970s. A smaller cluster is formed by Canada, the Netherlands, and Sweden, while the German credit cycle follows a distinct path. Using logistic regressions, we find that the synchronization of credit and business cycles go hand in hand. Our findings are especially relevant for the international coordination of macroprudential policy, as well as to spur and inform further analysis on credit cycle dynamics.

Suggested Citation

  • Meller, Barbara & Metiu, Norbert, 2017. "The synchronization of credit cycles," Journal of Banking & Finance, Elsevier, vol. 82(C), pages 98-111.
  • Handle: RePEc:eee:jbfina:v:82:y:2017:i:c:p:98-111
    DOI: 10.1016/j.jbankfin.2017.05.011
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    Cited by:

    1. Mariarosaria Comunale, 2017. "Synchronicity of real and financial cycles and structural characteristics in EU countries," CEIS Research Paper 414, Tor Vergata University, CEIS, revised 25 Sep 2017.
    2. Jorda, Oscar & Schularick, Moritz & Taylor, Alan M. & Ward, Felix, 2018. "Global Financial Cycles and Risk Premiums," Working Paper Series 2018-5, Federal Reserve Bank of San Francisco.
    3. Kunovac, Davor & Mandler, Martin & Scharnagl, Michael, 2018. "Financial cycles in euro area economies: A cross-country perspective," Discussion Papers 04/2018, Deutsche Bundesbank.

    More about this item

    Keywords

    Clustering; Credit booms; Credit cycles; Synchronization;

    JEL classification:

    • 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
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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