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Testing for causality between credit and real business cycles in the frequency domain: an illustration

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  • José E. Gómez-González
  • Jair N. Ojeda-Joya
  • Héctor Manuel Zárate
  • Fernando Tenjo-Galarza

Abstract

We estimate credit and GDP cycles for three Latin American economies and study their relation in the frequency domain. We compute coherence statistics between credit and GDP cycles and find that the highest correlations between these two cycles are obtained in medium-term frequencies. Spectral cross-correlations suggest a positive relation among lags in credit cycles and contemporaneous GDP cycles. Furthermore, this relation is higher approximately at medium-term frequencies. We perform frequency-domain Granger-type causality tests and find evidence of causality running from credit cycles to GDP cycles in all three economies.

Suggested Citation

  • José E. Gómez-González & Jair N. Ojeda-Joya & Héctor Manuel Zárate & Fernando Tenjo-Galarza, 2014. "Testing for causality between credit and real business cycles in the frequency domain: an illustration," Applied Economics Letters, Taylor & Francis Journals, vol. 21(10), pages 697-701, July.
  • Handle: RePEc:taf:apeclt:v:21:y:2014:i:10:p:697-701
    DOI: 10.1080/13504851.2014.884689
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    References listed on IDEAS

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    1. Lawrence J. Christiano & Terry J. Fitzgerald, 2003. "The Band Pass Filter," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 435-465, May.
    2. Breitung, Jorg & Candelon, Bertrand, 2006. "Testing for short- and long-run causality: A frequency-domain approach," Journal of Econometrics, Elsevier, vol. 132(2), pages 363-378, June.
    3. Charles Goodhart & Boris Hofmann, 2008. "House prices, money, credit, and the macroeconomy," Oxford Review of Economic Policy, Oxford University Press, vol. 24(1), pages 180-205, spring.
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    Cited by:

    1. Amador-Torres, Juan S. & Gomez-Gonzalez, Jose Eduardo & Ojeda-Joya, Jair N. & Jaulin-Mendez, Oscar F. & Tenjo-Galarza, Fernando, 2016. "Mind the gap: Computing finance-neutral output gaps in Latin-American economies," Economic Systems, Elsevier, vol. 40(3), pages 444-452.
    2. repec:eee:jmacro:v:61:y:2019:i:c:16 is not listed on IDEAS
    3. repec:spr:empeco:v:53:y:2017:i:2:d:10.1007_s00181-016-1142-0 is not listed on IDEAS
    4. Juan Guillermo Bedoya Ospina, 2017. "Ciclos de crédito, liquidez global y regímenes monetarios: una aproximación para América Latina," Revista Desarrollo y Sociedad, Universidad de los Andes - CEDE, vol. 78, February.
    5. Mikhail Stolbov, 2017. "Causality between credit depth and economic growth: evidence from 24 OECD countries," Empirical Economics, Springer, vol. 53(2), pages 493-524, September.

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