How Do Business and Financial Cycles Interact?

By Marco Terrones, Ayhan Kose, Stijn Claessens

April 1, 2011

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Format: Chicago

Marco Terrones, Ayhan Kose, and Stijn Claessens. How Do Business and Financial Cycles Interact?, (USA: International Monetary Fund, 2011) accessed November 8, 2024

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.

Subject: Business cycles, Credit, Financial cycles, Housing prices, Stocks

Keywords: Credit crunch, Equity price, House price, Price bust, WP

Publication Details

Pages:

54
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/088
Stock No:

WPIEA2011088
ISBN:

9781455233168
ISSN:

1018-5941

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