Financial Cycles: What? How? When?

By Marco Terrones, Ayhan Kose, Stijn Claessens

April 1, 2011

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Marco Terrones, Ayhan Kose, and Stijn Claessens. Financial Cycles: What? How? When?, (USA: International Monetary Fund, 2011) accessed December 21, 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 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.

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

Keywords: Asset price, Equity price, House price, Price downturn, Price upturn, WP

Publication Details

Pages:

40
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/076
Stock No:

WPIEA2011076
ISBN:

9781455227037
ISSN:

1018-5941

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