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Measuring real and financial cycles in Luxembourg: An unobserved components approach

Author

Listed:
  • Paolo Guarda

    ()

  • Alban Moura

    ()

Abstract

We use unobserved components time series models to extract real and financial cycles for Luxembourg over the period 1980Q1-2018Q2. We find that financial cycles are longer and have larger amplitude compared to standard business cycles. Furthermore, financial cycles are highly correlated with cycles in GDP. We compare our results to other approaches to measure financial cycles and show how unobserved components models can serve to evaluate uncertainty and to monitor cyclical developments in real time. Overall, our estimates indicate that in mid 2018 both real and financial cycles in Luxembourg were close to zero, with financial conditions near their long-run trend.

Suggested Citation

  • Paolo Guarda & Alban Moura, 2019. "Measuring real and financial cycles in Luxembourg: An unobserved components approach," BCL working papers 126, Central Bank of Luxembourg.
  • Handle: RePEc:bcl:bclwop:bclwp126
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    File URL: http://www.bcl.lu/en/publications/Working-papers/126/BCLWP126.pdf
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    References listed on IDEAS

    as
    1. Paolo Guarda & Philippe Jeanfils, 2012. "Macro-financial linkages: Evidence from country-specific VARs," BCL working papers 71, Central Bank of Luxembourg.
    2. Harvey,Andrew C., 1991. "Forecasting, Structural Time Series Models and the Kalman Filter," Cambridge Books, Cambridge University Press, number 9780521405737, June.
    3. Chen, Xiaoshan & Kontonikas, Alexandros & Montagnoli, Alberto, 2012. "Asset prices, credit and the business cycle," Economics Letters, Elsevier, vol. 117(3), pages 857-861.
    4. repec:mnb:finrev:v:17:y:2018:i:4:p:5-22 is not listed on IDEAS
    5. Gaston Giordana & Sabbah Gueddoudj, 2016. "Characterising the financial cycle in Luxembourg," BCL working papers 103, Central Bank of Luxembourg.
    6. Igan, Deniz & Kabundi, Alain & Nadal De Simone, Francisco & Pinheiro, Marcelo & Tamirisa, Natalia, 2011. "Housing, credit, and real activity cycles: Characteristics and comovement," Journal of Housing Economics, Elsevier, vol. 20(3), pages 210-231, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Financial cycles; unobserved component time series models; Luxembourg.;

    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
    • G01 - Financial Economics - - General - - - Financial Crises

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