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Financial cycles in euro area economies: A cross-country perspective

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  • Kunovac, Davor
  • Mandler, Martin
  • Scharnagl, Michael

Abstract

We study the cross-country dimension of financial cycles for six euro area countries using three different methodologies: principal component analysis, synchronicity and similarity measures and wavelet analysis. We find that equity prices and interest rates display synchronization across countries similar to or exceeding that of real GDP. In contrast, our estimates show much lower cross-country synchronization of credit variables and house prices - bank lending to nonfinancial firms being an exception with relatively large cross-country co-movements. These results are robust across the different estimation methodologies. Concerning time-variation we find evidence for a decline in the extent of co-movements in house prices over time while comovements in the term spread have increased with the introduction of the European monetary union.

Suggested Citation

  • Kunovac, Davor & Mandler, Martin & Scharnagl, Michael, 2018. "Financial cycles in euro area economies: A cross-country perspective," Discussion Papers 04/2018, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdps:042018
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    Cited by:

    1. Scharnagl Michael & Mandler Martin, 2019. "Real and Financial Cycles in Euro Area Economies: Results from Wavelet Analysis," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 239(5-6), pages 895-916, October.
    2. Davor Kunovac & Ivan Žilić, 2020. "Home sweet home: The effects of housing loan subsidies on the housing market in Croatia," Working Papers 60, The Croatian National Bank, Croatia.
    3. Jitka Pomenkova & Eva Klejmova & Zuzana Kucerova, 2019. "Cyclicality in lending activity of Euro area in pre- and post- 2008 crisis: a local-adaptive-based testing of wavelets," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 19(1), pages 155-175.
    4. Mandler, Martin & Scharnagl, Michael, 2022. "Financial cycles across G7 economies: A view from wavelet analysis," The Journal of Economic Asymmetries, Elsevier, vol. 26(C).
    5. Milena Lipovina-Božoviæ & Maja Ivanoviæ, 2018. "Capital flows in Montenegro: SVAR model," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 36(2), pages 647-675.
    6. Beirne, John, 2020. "Financial cycles in asset markets and regions," Economic Modelling, Elsevier, vol. 92(C), pages 358-374.
    7. Škare, Marinko & Porada-Rochoń, Małgorzata, 2020. "Multi-channel singular-spectrum analysis of financial cycles in ten developed economies for 1970–2018," Journal of Business Research, Elsevier, vol. 112(C), pages 567-575.
    8. policy, Work stream on macroprudential & Policy, Monetary & Stability, Financial & Albertazzi, Ugo & Martin, Alberto & Assouan, Emmanuelle & Tristani, Oreste & Galati, Gabriele & Vlassopoulos, Thomas , 2023. "The role of financial stability considerations in monetary policy and the interaction with macroprudential policy in the euro area," Occasional Paper Series 272, European Central Bank.
    9. Andreea Maria Muraru, 2020. "The Impact of Global Tensions on the Economic and Financial Cycle in Romania," Postmodern Openings, Editura Lumen, Department of Economics, vol. 11(3), pages 115-128, October.
    10. policy, Work stream on macroprudential & Albertazzi, Ugo & Martin, Alberto & Assouan, Emmanuelle & Tristani, Oreste & Galati, Gabriele & Vlassopoulos, Thomas, 2021. "The role of financial stability considerations in monetary policy and the interaction with macroprudential policy in the euro area," Occasional Paper Series 272, European Central Bank.

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    More about this item

    Keywords

    financial cycles; band-pass filter; principal components; wavelet analysis;
    All these keywords.

    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
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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