Working Paper: CEPR ID: DP8379
Authors: Stijn Claessens; Ayhan Kose; Marco E. Terrones
Abstract: This paper provides a comprehensive analysis of financial cycles using a large database covering 21 advanced countries over the period 1960:1-2007:4. Specifically, we analyze cycles in credit, house prices, and equity prices. We report three main results. First, financial cycles tend to be long and severe, especially those in housing and equity markets. Second, they are highly synchronized within countries, particularly credit and house price cycles. The extent of synchronization of financial cycles across countries is high as well, mainly for credit and equity cycles, and has been increasing over time. Third financial cycles accentuate each other and become magnified, especially during coincident downturns in credit and housing markets. Moreover, globally synchronized downturns tend to be associated with more prolonged and costly episodes, especially for credit and equity cycles. We discuss how these findings can guide future research on various aspects of financial market developments.
Keywords: Asset Busts; Credit Booms; Credit Cycles; Crunches; Equity Prices; House Prices
JEL Codes: E32; F42; G12; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| financial disruptions (F65) | duration of financial cycles (E32) |
| booms (Q33) | duration of financial cycles (E32) |
| downturns in credit markets (E44) | severity of financial disruptions (F65) |
| downturns in housing markets (R31) | severity of financial disruptions (F65) |
| equity cycles (E32) | duration of financial cycles (E32) |
| house price cycles (E32) | duration of financial cycles (E32) |
| credit cycles (E32) | duration of financial cycles (E32) |
| synchronization of financial cycles across countries (F44) | influence of global factors (F69) |
| globally synchronized downturns (F44) | duration of financial cycles (E32) |
| globally synchronized downturns (F44) | severity of financial cycles (E32) |
| feedback mechanism between credit and equity cycles (E32) | severity of financial cycles (E32) |