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Interactions between Business Cycles, stock Market Cycles and Interest Rates: the Stylised Facts

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  • Avouyi-Dovi, S.
  • Matheron, J.

Abstract

In this paper, we study the co-movements between stock market indices and real economic activity over the business cycle in France, Germany, Italy, the United Kingdom and the United States, using two complementary approaches in our analysis. First, we identify the turning points in real economy indicators and stock market indices and determine the extent to which these series co-move. Second, we calculate the correlations between the cyclical components of real economy indicators and excess returns, on the one hand, and the correlations between the structural components and these indicators, on the other. We then analyse the co-movements between three-month interest rates and the cyclical and structural components of the real economy and stock market indices.

Suggested Citation

  • Avouyi-Dovi, S. & Matheron, J., 2005. "Interactions between Business Cycles, stock Market Cycles and Interest Rates: the Stylised Facts," Working papers 121, Banque de France.
    • Handle: RePEc:bfr:banfra:121
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    2. Kierzenkowski, R. & Oung, V., 2007. "L’évolution des crédits à l’habitat en France : une grille d’analyse en termes de cycles," Working papers 172, Banque de France.
    3. Mathias Drehmann & Claudio Borio & Kostas Tsatsaronis, 2012. "Characterising the financial cycle: don't lose sight of the medium term!," BIS Working Papers 380, Bank for International Settlements.
    4. Gammadigbe, Vigninou, 2022. "Financial Cycles Synchronization in WAEMU Countries: Implications for Macroprudential Policy," Finance Research Letters, Elsevier, vol. 46(PA).
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    6. Hsu, Sara, 2012. "The US financial system, the great recession, and the “speculative spread”," MPRA Paper 38478, University Library of Munich, Germany.
    7. Balázs Égert & Douglas Sutherland, 2014. "The Nature of Financial and Real Business Cycles: The Great Moderation and Banking Sector Pro-Cyclicality," Scottish Journal of Political Economy, Scottish Economic Society, vol. 61(1), pages 98-117, February.
    8. Alexander Erler & Christian Drescher & Damir Križanac, 2013. "The Fed’s TRAP," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 37(1), pages 136-149, January.
    9. Fernando Arias Rodríguez & Celina Gaitán Maldonado & Johanna López Velandia, 2014. "Las entidades financieras a lo largo del ciclo de negocios: ¿está el ciclo financiero sincronizado con el ciclo de negocios?," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 32(75), pages 28-40, December.
    10. Ioan Roxana, 2015. "The Co-Movement Connection Between The Gdp And The Main Stock Market Index. The Cases Of Usa And Romania," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 6, pages 186-192, December.
    11. Kee Tuan Teng & Siew Hwa Yen & Soo Y. Chua, 2013. "The Synchronisation of ASEAN-5 Stock Markets with the Growth Rate Cycles of Selected Emerging and Developed Economies," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 7(1), pages 1-28, February.
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    13. Iwanicz-Drozdowska Małgorzata & Kurowski Łukasz, 2021. "Keep your friends close and your enemies closer – the case of monetary policy and financial imbalances," German Economic Review, De Gruyter, vol. 22(4), pages 383-414, November.
    14. Jorge Mario Uribe & Inés María Ulloa & Johanna Perea, 2015. "Reference financial cycle in Colombia," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 83, pages 33-62, Julio - D.
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    More about this item

    Keywords

    Stock returns ; Comovements ; Turning points ; Spectral analysis.;
    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

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