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Real and financial cycles in EU countries - Stylised facts and modelling implications

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  • Rünstler, Gerhard
  • Balfoussia, Hiona
  • Burlon, Lorenzo
  • Buss, Ginters
  • Comunale, Mariarosaria
  • De Backer, Bruno
  • Dewachter, Hans
  • Guarda, Paolo
  • Haavio, Markus
  • Hindrayanto, Irma
  • Iskrev, Nikolai Ivanov
  • Jaccard, Ivan
  • Kulikov, Dmitry
  • Kunovac, Davor
  • Lenarcic, Crt
  • Lequien, Matthieu
  • Lozej, Matija
  • Mandler, Martin
  • Papageorgiou, Dimitris
  • Pedersen, Jesper
  • Perez-Quiros, Gabriel
  • Rannenberg, Ansgar
  • Rots, Eyno
  • Scharnagl, Michael
  • Welz, Peter

Abstract

This paper studies the cyclical properties of real GDP, house prices, credit, and nominal liquid financial assets in 17 EU countries, by applying several methods to extract cycles. The estimates confirm earlier findings of large medium-term cycles in credit volumes and house prices. GDP appears to be subject to fluctuations at both business-cycle and medium-term frequencies, and GDP fluctuations at medium-term frequencies are strongly correlated with cycles in credit and house prices. Cycles in equity prices and long-term interest rates are considerably shorter than those in credit and house prices and have little in common with the latter. Credit and house price cycles are weakly synchronous across countries and their volatilities vary widely – these differences may be related to the structural properties of housing and mortgage markets. Finally, DSGE models can replicate the volatility of cycles in house and equity prices, but not the persistence of house price cycles. JEL Classification: C32, E32, E44

Suggested Citation

  • Rünstler, Gerhard & Balfoussia, Hiona & Burlon, Lorenzo & Buss, Ginters & Comunale, Mariarosaria & De Backer, Bruno & Dewachter, Hans & Guarda, Paolo & Haavio, Markus & Hindrayanto, Irma & Iskrev, Nik, 2018. "Real and financial cycles in EU countries - Stylised facts and modelling implications," Occasional Paper Series 205, European Central Bank.
  • Handle: RePEc:ecb:ecbops:2018205
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    Keywords

    DSGE models; financial cycles; real-time estimates; synchronicity;

    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
    • 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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