Working Paper: CEPR ID: DP8396
Authors: Stijn Claessens; Ayhan Kose; Marco E. Terrones
Abstract: This paper analyzes the interactions between business and financial cycles using an extensive database of over 200 business and 700 financial cycles in 44 countries for the period 1960:1-2007:4. Our results suggest that there are strong linkages between different phases of business and financial cycles. In particular, recessions associated with financial disruption episodes, notably house price busts, tend to be longer and deeper than other recessions. Conversely, recoveries associated with rapid growth in credit and house prices tend to be stronger. These findings emphasize the importance of developments in credit and housing markets for the real economy.
Keywords: asset busts; booms; credit crunches; financial crises; recessions; recoveries
JEL Codes: E32; E44; E51; F42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| House price bust (R31) | Duration of recession (F44) |
| House price bust (R31) | Amplitude of recession (E32) |
| Rapid growth in credit (E51) | Strength of recovery (E65) |
| Rapid growth in house prices (R31) | Strength of recovery (E65) |
| Financial cycles (E32) | Business cycles (E32) |