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How Do Business and Financial Cycles Interact?

Author/Editor: Marco Terrones | M. Ayhan Kose | Stijn Claessens
Authorized for Distribution: April 1, 2011
Electronic Access: Free Full Text (PDF file size is 1,082KB)
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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 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.
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Series: Working Paper No. 11/88
Subject(s): Economic models | Economic recession | Economic recovery | Financial sector
Author's keyword(s): Credit crunches | asset busts | booms | recessions | recoveries | financial crises.
    Published:   April 1, 2011        
    ISBN/ISSN:   9781455233168/1018-5941   Format:   Paper
    Stock No:   WPIEA2011088   Pages:   54
    Price:   US$18.00
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