Financial cycle and business cycle: An empirical analysis based on the data from the U.S |
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| Affiliation: | 1. School of Economics, Shanghai University of Finance and Economics, China;2. School of Sciences, Zhejiang University of Science and Technology, China;3. Economics of Vanderbilt University, USA;1. De Nederlandsche Bank, Westeinde 1, 1017 ZN Amsterdam, The Netherlands;2. University of Groningen, Nettelbosje 2, 9700 AV Groningen, The Netherlands;3. Utrecht University, Kriekenpitplein 21-22, 3584 EC Utrecht, The Netherlands;1. Warsaw School of Economics, Institute of Finance, al. Niepodległości 162, 02-544 Warsaw, Poland;2. National Bank of Poland, Warsaw, Poland;1. Juraj Dobrila University of Pula, Faculty of Economics and Tourism “Dr. Mijo Mirković”, Preradovićeva 1/1, 52100 Pula, Croatia;2. Faculty of Management and Economics of Services, University of Szczecin, ul. Cukrowa 8, Szczecin 71-004, Poland |
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| Abstract: | In this paper, we first study the relationship between the financial cycle and the business cycle in the time and frequency domain. Then we also explore the interactions and dynamic mechanisms of the financial cycle, the business cycle, real interest rate and exchange rate by the VAR model. The empirical results show that the financial cycle is closely related to the business cycle, especially at medium-term frequencies (8–30 years), the business cycle leads the financial cycle with a high positive correlation. However, the relationship between them is not significant during the Great Moderation at business-cycle (2–4 years). In addition, the financial cycle not only becomes a main driver of real interest rate, the financial cycle and the business cycle, but also serves as an important source of the business cycle fluctuations. In general, our results lay some theoretical foundation for the policy practice of financial and economic stability. |
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| Keywords: | Financial cycle Business cycle Credit Wavelet power spectrum C49 E32 E37 |
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