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The Nature of Financial and Real Business Cycles: The Great Moderation and Banking Sector Pro-Cyclicality

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  • Balázs Égert

    (OECD)

  • Douglas Sutherland

    (OECD)

Abstract

This paper takes a fresh look at the nature of financial and real business cycles in OECD countries using annual data series and shorter quarterly and monthly economic indicators. It first analyses the main characteristics of the cycle, including the length, amplitude, asymmetry and changes of these parameters during expansions and contractions. It then studies the degree of economic and financial cycle synchronisation between OECD countries but also of economic and financial variables within a given country, and gauges the extent to which cycle synchronisation changed over time. Finally, the paper provides some new evidence on the drivers of the great moderation and analyses the banking sector’s pro-cyclicality by using aggregate and bank-level data. The main findings show that the amplitude of the real business cycle was becoming smaller during the great moderation, but asset price cycles were becoming more volatile. In part this was linked to developments in the banking sector which tended to accentuate pro-cyclical behaviour. Cycles économiques et financiers : la grande modération et la pro-cyclicalité du secteur bancaire Ce papier analyse la nature des cycles économiques et financiers dans les pays de l'OCDE en utilisant des séries annuelles, trimestrielles et mensuelles. Il analyse d'abord les principales caractéristiques du cycle, y compris la durée, l'amplitude, l'asymétrie et les changements de ces paramètres au cours des expansions et contractions. Il étudie ensuite le degré de synchronisation des cycles économiques et financiers entre les pays de l'OCDE, mais aussi des variables économiques et financières dans un pays donné, et évalue dans quelle mesure la synchronisation des cycles a changé au fil du temps. Enfin, le papier fournit quelques éléments nouveaux sur les facteurs de la grande modération et étudie la pro-cyclicité du secteur bancaire en utilisant des données agrégées et des banques individuelles. Les principaux résultats montrent que l'amplitude du cycle réel diminuait durant la grande modération, mais les cycles des prix des actifs ont été de plus en plus volatiles. Cela était en partie liée à l'évolution du secteur bancaire qui avait tendance à accentuer le comportement pro-cyclique.

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  • Balázs Égert & Douglas Sutherland, 2012. "The Nature of Financial and Real Business Cycles: The Great Moderation and Banking Sector Pro-Cyclicality," OECD Economics Department Working Papers 938, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:938-en
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    File URL: http://dx.doi.org/10.1787/5k9h28k3gt24-en
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    Cited by:

    1. Nicola CUCARI, 2016. "Donatello Strangio & Giuseppe Sancetta (Eds.), Italy in a European Context: Research in Business, Economics, and the Environment," Journal of Economics Library, KSP Journals, vol. 3(2), pages 347-352, June.
    2. Mikhail Stolbov, 2014. "International Credit Cycles: A Regional Perspective," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 21-47.
    3. 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.
    4. Brigitte Granville & Sana Hussain, 2017. "Eurozone cycles: An analysis of phase synchronization," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 22(2), pages 83-114, April.
    5. repec:eee:finlet:v:21:y:2017:i:c:p:115-125 is not listed on IDEAS
    6. Douglas Sutherland & Peter Hoeller, 2013. "Growth-promoting Policies and Macroeconomic Stability," OECD Economics Department Working Papers 1091, OECD Publishing.
    7. Douglas Sutherland & Peter Hoeller, 2012. "Debt and Macroeconomic Stability: An Overview of the Literature and Some Empirics," OECD Economics Department Working Papers 1006, OECD Publishing.

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    Keywords

    banking system; cycles financiers; cycles économiques; financial cycles; financial markets; grande modération; great moderation; marchés financiers; real business cycles; système bancaire;

    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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