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How do financial cycles interact? Evidence from the US and the UK

Author

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  • Strohsal, Till
  • Proaño Acosta, Christian
  • Wolters, Jürgen

Abstract

Are financial cycles an international phenomenon, and, if so, how do financial cycles interact? This letter provides new evidence for the US and the UK. Considering the properties of the data in both the time and the frequency domains, we find a strong relation between the financial cycles of the US and the UK. US financial cycles have a significant impact on the UK, but not the other way around. The relation is clearly most pronounced for cycles between 8 and 30 years, which is also the frequency range that explains almost all variation of the data.

Suggested Citation

  • Strohsal, Till & Proaño Acosta, Christian & Wolters, Jürgen, 2015. "How do financial cycles interact? Evidence from the US and the UK," SFB 649 Discussion Papers 2015-024, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    • Handle: RePEc:zbw:sfb649:sfb649dp2015-024
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    References listed on IDEAS

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    1. Strohsal, Till & Proaño, Christian R. & Wolters, Jürgen, 2019. "Characterizing the financial cycle: Evidence from a frequency domain analysis," Journal of Banking & Finance, Elsevier, vol. 106(C), pages 568-591.
    2. repec:hum:wpaper:sfb649dp2015-021 is not listed on IDEAS
    3. Gebhard Kirchgässner & Jürgen Wolters & Uwe Hassler, 2013. "Introduction to Modern Time Series Analysis," Springer Texts in Business and Economics, Springer, edition 2, number 978-3-642-33436-8, March.
    4. Jorg Breitung & Sandra Eickmeier, 2014. "Analyzing Business and Financial Cycles Using Multi-Level Factor Models," CAMA Working Papers 2014-43, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    5. Stijn Claessens & M. Ayhan Kose & Marco E. Terrones, 2011. "Financial Cycles: What? How? When?," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 7(1), pages 303-344.
    6. Borio, Claudio, 2014. "The financial cycle and macroeconomics: What have we learnt?," Journal of Banking & Finance, Elsevier, vol. 45(C), pages 182-198.
    7. Breitung, Jorg & Candelon, Bertrand, 2006. "Testing for short- and long-run causality: A frequency-domain approach," Journal of Econometrics, Elsevier, vol. 132(2), pages 363-378, June.
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    Cited by:

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    Keywords

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    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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