IDEAS home Printed from https://ideas.repec.org/p/rtv/ceisrp/414.html
   My bibliography  Save this paper

Synchronicity of real and financial cycles and structural characteristics in EU countries

Author

Listed:
  • Mariarosaria Comunale

    () (Economics Department, Bank of Lithuania)

Abstract

In this paper, we examine the relationships between real, credit and house price cycles, by using a synchronicity index, and structural characteristics and macroeconomic variables of 17 EU countries. We find that the cycles between credit variables and the real cycle with the property or equity prices cycles seem relatively well synchronised. Credit and GDP fluctuations seem to be less synchronised, mostly because credit volumes tend to lag the real cycle by several quarters. The high rates of private homeownership tend to be associated with larger cycles in GDP, credit, and house prices. Higher Loan-To-Value ratios, seen as a proxy of borrowing constraints, and a higher percentage of flexible-rate mortgages, could also indicate that a country is more sensitive to shocks and possibly increase pro-cyclicality and increase cycle volatility. Finally, the pro-cyclicality of the credit and housing market to the GDP cycle can be linked to the fluctuation in current accounts and their misalignments with respect to the theoretical equilibrium value. The synchronicity and the cycles of credit may also be considered for signaling recessions.

Suggested Citation

  • Mariarosaria Comunale, 2017. "Synchronicity of real and financial cycles and structural characteristics in EU countries," CEIS Research Paper 414, Tor Vergata University, CEIS, revised 25 Sep 2017.
  • Handle: RePEc:rtv:ceisrp:414
    as

    Download full text from publisher

    File URL: ftp://www.ceistorvergata.it/repec/rpaper/RP414.pdf
    File Function: Main text
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Chinn, Menzie D. & Ito, Hiro, 2006. "What matters for financial development? Capital controls, institutions, and interactions," Journal of Development Economics, Elsevier, vol. 81(1), pages 163-192, October.
    2. Dimitrios Asteriou & Argiro Moudatsou, 2015. "Business Cycle Synchronization in the Enlarged EU: The Role of Bilateral Trade and FDI," Review of Development Economics, Wiley Blackwell, vol. 19(1), pages 196-207, February.
    3. repec:eee:jhouse:v:38:y:2017:i:c:p:1-13 is not listed on IDEAS
    4. Edward E. Leamer, 2007. "Housing is the business cycle," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 149-233.
    5. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June.
    6. Peter Benczur & Attila Ratfai, 2010. "Economic fluctuations in Central and Eastern Europe: the facts," Applied Economics, Taylor & Francis Journals, vol. 42(25), pages 3279-3292.
    7. Pedro Cerqueira, 2013. "A closer look at the world business cycle synchronization," International Economics and Economic Policy, Springer, vol. 10(3), pages 349-363, September.
    8. Moritz Schularick & Alan M. Taylor, 2012. "Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870-2008," American Economic Review, American Economic Association, vol. 102(2), pages 1029-1061, April.
    9. Matthew Chambers & Carlos Garriga & Don E. Schlagenhauf, 2009. "Accounting For Changes In The Homeownership Rate," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(3), pages 677-726, August.
    10. Ca’ Zorzi, Michele & Chudik, Alexander & Dieppe, Alistair, 2012. "Thousands of models, one story: Current account imbalances in the global economy," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1319-1338.
    11. Cesa-Bianchi, Ambrogio & Imbs, Jean & Saleheen, Jumana, 2019. "Finance and synchronization," Journal of International Economics, Elsevier, vol. 116(C), pages 74-87.
    12. Pierre-Olivier Gourinchas & Maurice Obstfeld, 2012. "Stories of the Twentieth Century for the Twenty-First," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(1), pages 226-265, January.
    13. Feng Dong & Pengfei Wang & Yi Wen, 2016. "Credit search and credit cycles," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 61(2), pages 215-239, February.
    14. repec:eee:ecosys:v:42:y:2018:i:1:p:75-90 is not listed on IDEAS
    15. Matteo Iacoviello, 2015. "Financial Business Cycles," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(1), pages 140-164, January.
    16. Meller, Barbara & Metiu, Norbert, 2015. "The synchronization of European credit cycles," Discussion Papers 20/2015, Deutsche Bundesbank.
    17. Ansgar Belke & Clemens Domnick & Daniel Gros, 2017. "Business Cycle Synchronization in the EMU: Core vs. Periphery," Open Economies Review, Springer, vol. 28(5), pages 863-892, November.
    18. David Aikman & Andrew G. Haldane & Benjamin D. Nelson, 2015. "Curbing the Credit Cycle," Economic Journal, Royal Economic Society, vol. 125(585), pages 1072-1109, June.
    19. Mariarosaria Comunale, 2016. "A Closer Look at EU Current Accounts," CEIS Research Paper 393, Tor Vergata University, CEIS, revised 11 Aug 2016.
    20. repec:eee:jbfina:v:82:y:2017:i:c:p:98-111 is not listed on IDEAS
    21. 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.
    22. M. Ayhan Kose & Prakash Loungani & Marco E. Terrones, 2013. "From the Global to the National Cycle: An Intricate Liaison," Pacific Economic Review, Wiley Blackwell, vol. 18(3), pages 370-402, August.
    23. Mariarosaria Comunale, 2017. "A panel VAR analysis of macro-financial imbalances in the EU," Bank of Lithuania Working Paper Series 40, Bank of Lithuania.
    24. Matteo Iacoviello & Stefano Neri, 2010. "Housing Market Spillovers: Evidence from an Estimated DSGE Model," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 125-164, April.
    25. Michael Biggs & Thomas Mayer & Andreas Pick, 2009. "Credit and economic recovery," DNB Working Papers 218, Netherlands Central Bank, Research Department.
    26. Bekiros Stelios & Nguyen Duc Khuong & Uddin Gazi Salah & Sjö Bo, 2015. "Business cycle (de)synchronization in the aftermath of the global financial crisis: implications for the Euro area," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 19(5), pages 609-624, December.
    27. Mark Mink & Jan P.A.M. Jacobs & Jakob de Haan, 2012. "Measuring coherence of output gaps with an application to the euro area," Oxford Economic Papers, Oxford University Press, vol. 64(2), pages 217-236, April.
    28. Martin Gächter & Aleksandra Riedl & Doris Ritzberger-Grünwald, 2012. "Business Cycle Synchronization in the Euro Area and the Impact of the Financial Crisis," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 33-60.
    29. repec:bla:obuest:v:79:y:2017:i:4:p:513-545 is not listed on IDEAS
    30. Enrique G. Mendoza, 2016. "Macroprudential Policy: Promise and Challenges," NBER Working Papers 22868, National Bureau of Economic Research, Inc.
    31. Danilo Leiva-Leon, 2017. "Measuring Business Cycles Intra-Synchronization in US: A Regime-switching Interdependence Framework," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(4), pages 513-545, August.
    32. Stefan Avdjiev & Stephan Binder & Ricardo Sousa, 2017. "External debt composition and domestic credit cycles," BIS Working Papers 627, Bank for International Settlements.
    33. repec:eee:jimfin:v:77:y:2017:i:c:p:77-98 is not listed on IDEAS
    34. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    35. Comunale, Mariarosaria, 2017. "Dutch disease, real effective exchange rate misalignments and their effect on GDP growth in EU," Journal of International Money and Finance, Elsevier, vol. 73(PB), pages 350-370.
    36. Christian Gayer, 2007. "A fresh look at business cycle synchronisation in the euro area," European Economy - Economic Papers 2008 - 2015 287, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    37. Margarita Rubio, 2014. "Macroprudential Policy Implementation in a Heterogeneous Monetary Union," Discussion Papers 2014/03, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    38. Margarita Rubio & Mariarosaria Comunale, 2017. "Lithuania in the Euro Area: Monetary Transmission and Macroprudential Policies," Eastern European Economics, Taylor & Francis Journals, vol. 55(1), pages 29-49, January.
    39. Feng Dong & Pengfei Wang & Yi Wen, 2016. "Credit search and credit cycles," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 61(2), pages 215-239, February.
    40. Cerutti, Eugenio & Dagher, Jihad & Dell'Ariccia, Giovanni, 2017. "Housing finance and real-estate booms: A cross-country perspective," Journal of Housing Economics, Elsevier, vol. 38(C), pages 1-13.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.

    More about this item

    Keywords

    cycles; synchronicity; housing market; credit; European Union;

    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
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rtv:ceisrp:414. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Barbara Piazzi). General contact details of provider: http://edirc.repec.org/data/csrotit.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.