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A Cross-Country Financial Accelorator: Evidence from North America and Europe

  • Mark Taylor
  • Ashoka Mody
  • Lucio Sarno

A growing literature has examined the importance of credit market imperfections for macroeconomic fluctuations, the so-called financial accelerator. A related literature has provided evidence of international and regional co-movements in macroeconomic fluctuations. We tie together these strands of the literature in that we investigate the importance of both cross-country and country-specific credit cycles in explaining output fluctuations. Using data for four major economies and two world regions from 1973 to 2001, we find that both regional and country-specific components of indicators of credit availability are powerful in explaining output movements. This research provides the first empirical evidence of a cross-country financial accelerator.

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Paper provided by Warwick Business School, Finance Group in its series Working Papers with number wp05-12.

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Date of creation: 2005
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Handle: RePEc:wbs:wpaper:wp05-12
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  1. Gregory, Allan W & Head, Allen C & Raynauld, Jacques, 1997. "Measuring World Business Cycles," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(3), pages 677-701, August.
  2. Michael Dotsey, 1998. "The predictive content of the interest rate term spread for future economic growth," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 31-51.
  3. Sarno, Lucio, 2000. "Nonlinear Dynamics, Spillovers and Growth in the G7 Economies: An Empirical Investigation," CEPR Discussion Papers 2537, C.E.P.R. Discussion Papers.
  4. Artis, Michael J & Zhang, W, 1997. "International Business Cycles and the ERM: Is There a European Business Cycle?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 2(1), pages 1-16, January.
  5. Gertler, Mark & Lown, Cara S, 1999. "The Information in the High-Yield Bond Spread for the Business Cycle: Evidence and Some Implications," Oxford Review of Economic Policy, Oxford University Press, vol. 15(3), pages 132-50, Autumn.
  6. Bernanke, B. & Gertler, M. & Gilchrist, S., 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," Working Papers 98-03, C.V. Starr Center for Applied Economics, New York University.
  7. Robin L. Lumsdaine & Eswar Prasad, 1999. "Identifying the Common Component in International Economic Fluctuations: A New Approach," IMF Working Papers 99/154, International Monetary Fund.
  8. Bergman, U. Michael & Bordo, Michael D. & Jonung, Lars, 1998. "Historical Evidence on Business Cycles: The International Experience," SSE/EFI Working Paper Series in Economics and Finance 255, Stockholm School of Economics.
  9. Bernard, A.B. & Durlauf, S.N., 1993. "Convergence in International Output," Working papers 93-7, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1994. "The Financial Accelerator and the Flight to Quality," Working Papers 94-24, C.V. Starr Center for Applied Economics, New York University.
  11. Baxter, M., 1994. "International Trade and Business Cycles," RCER Working Papers 390, University of Rochester - Center for Economic Research (RCER).
  12. Baxter, Marianne, 1995. "International trade and business cycles," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 35, pages 1801-1864 Elsevier.
  13. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1991. "International real business cycles," Staff Report 146, Federal Reserve Bank of Minneapolis.
  14. M. Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2003. "International Business Cycles: World, Region, and Country-Specific Factors," American Economic Review, American Economic Association, vol. 93(4), pages 1216-1239, September.
  15. Jeffrey C. Fuhrer & Scott Schuh, 1998. "Beyond shocks: what causes business cycles?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 42(Jun).
  16. Jean IMBS, 1998. "Co-Fluctuations," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9819, Université de Lausanne, Faculté des HEC, DEEP.
  17. Artis, Michael J & Kontolemis, Zenon G & Osborn, Denise R, 1997. "Business Cycles for G7 and European Countries," The Journal of Business, University of Chicago Press, vol. 70(2), pages 249-79, April.
  18. R. Glenn Hubbard, 1997. "Capital-Market Imperfections and Investment," NBER Working Papers 5996, National Bureau of Economic Research, Inc.
  19. Ashoka Mody & Mark P. Taylor, 2003. "The High-Yield Spread as a Predictor of Real Economic Activity: Evidence of a Financial Accelerator for the United States," IMF Staff Papers, Palgrave Macmillan, vol. 50(3), pages 3.
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