Financial cycles: Characterisation and real-time measurement

Yves Schüler, Paul P. Hiebert and Tuomas A. Peltonen

Journal of International Money and Finance, 2020, vol. 100, issue C

Abstract: We demonstrate that financial cycles (identified as the common fluctuation in credit and asset prices, proxying balance-sheet leverage) differ across G-7 countries in terms of duration. This contradicts a similar-duration assumption inherent in the Basel III credit-to-GDP gap guiding countercyclical capital buffers. Against this backdrop, we propose an empirical methodology for constructing country-specific financial cycles that relaxes the similar-duration assumption and is based on the common fluctuation of several variables. Using credit and asset prices as inputs to our methodology, we show that constructed financial cycles significantly outperform the Basel III credit-to-GDP gap in predicting financial crises.

Keywords: Macroprudential policy; Spectral analysis; Early warning (search for similar items in EconPapers)
JEL-codes: C54 E32 E44 E58 G01 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (37)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0261560619301597
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:100:y:2020:i:c:s0261560619301597

DOI: 10.1016/j.jimonfin.2019.102082

Access Statistics for this article

Journal of International Money and Finance is currently edited by J. R. Lothian

More articles in Journal of International Money and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().