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Characterizing the financial cycle: Evidence from a frequency domain analysis

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  • Strohsal, Till
  • Proaño, Christian R.
  • Wolters, Jürgen

Abstract

A growing body of literature argues that the financial cycle is considerably longer in duration and larger in amplitude than the business cycle and that its distinguishing features became more pronounced over time. This paper proposes an empirical approach suitable to test these hypotheses. We parametrically estimate the whole spectrum of financial and real variables to obtain a complete picture of their cyclical properties. We provide strong statistical evidence for the US and slightly weaker evidence for the UK validating the hypothesized features of the financial cycle. In Germany, however, the financial cycle is, if at all, much less visible.

Suggested Citation

  • Strohsal, Till & Proaño, Christian R. & Wolters, Jürgen, 2015. "Characterizing the financial cycle: Evidence from a frequency domain analysis," Discussion Papers 22/2015, Deutsche Bundesbank.
  • Handle: RePEc:zbw:bubdps:222015
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    Citations

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    Cited by:

    1. Till Strohsal & Christian R. Proaño & Jürgen Wolters, 2015. "How Do Financial Cycles Interact? Evidence from the US and the UK," SFB 649 Discussion Papers SFB649DP2015-024, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    2. Krug, Sebastian & Wohltmann, Hans-Werner, 2016. "Shadow banking, financial regulation and animal spirits: An ACE approach," Economics Working Papers 2016-08, Christian-Albrechts-University of Kiel, Department of Economics.
    3. repec:eee:ecmode:v:65:y:2017:i:c:p:51-66 is not listed on IDEAS
    4. Kilponen, Juha & Verona, Fabio, 2016. "Testing the Q theory of investment in the frequency domain," Research Discussion Papers 32/2016, Bank of Finland.
    5. Till Strohsal & Christian R. Proaño & Jürgen Wolters, 2017. "Assessing the Cross-Country Interaction of Financial Cycles: Evidence from a Multivariate Spectral Analysis of the US and the UK," IMK Working Paper 182-2017, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    6. Verona, Fabio, 2016. "Time–frequency characterization of the U.S. financial cycle," Economics Letters, Elsevier, vol. 144(C), pages 75-79.
    7. Victor Pontines, "undated". "The Financial Cycles in Four East Asian Economies," Working Papers wp17, South East Asian Central Banks (SEACEN) Research and Training Centre.
    8. repec:taf:quantf:v:17:y:2017:i:12:p:1965-1994 is not listed on IDEAS
    9. Siem Jan Koopman & Rutger Lit & Andre Lucas, 2016. "Model-based Business Cycle and Financial Cycle Decomposition for Europe and the U.S," Tinbergen Institute Discussion Papers 16-051/IV, Tinbergen Institute.

    More about this item

    Keywords

    Financial Cycle; Business Cycle; Indirect Spectrum Estimation; Bootstrapping Inference;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • 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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