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Financial Cycles: What? How? When?

Author/Editor: Claessens, Stijn | Kose, M. Ayhan | Terrones, Marco
Authorized for Distribution: April 1, 2011
Electronic Access: Free Full Text (PDF file size is 1,149KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: 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.
 
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Series: Working Paper No. 11/76
Subject(s): Business cycles | Capital markets | Credit | Demand | Developed countries | Housing prices | Stock prices
Author's keyword(s): Credit booms; credit cycles; asset busts; crunches; house prices; equity prices.
 
English  
    Published:   April 1, 2011        
            Format:   Paper
    Stock No:   WPIEA2011076   Pages:   40
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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