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A Financial Sector Balance Approach and the Cyclical Dynamics of the U.S. Economy

Paolo Casadio and Antonio Paradiso (antonio.paradiso@unive.it)

Economics Working Paper Archive from Levy Economics Institute

Abstract: This paper investigates the relationship between asset markets and business cycles with regard to the United States economy. We consider the Goldman Sachs approach (2003) developed to study the dynamics of financial balances. By means of a small econometric model we find that asset market dynamics are fundamental to determining the long-run financial sector balance dynamics. The gap between long-run equilibrium values and the actual values of the financial balances help to explain the cyclical path of the economy. Among all financial sectors balances, the financing gap in the corporate sector shows a leading effect on business cycles, in a Minskyan spirit. The last results appear innovative with respect to Goldman Sachs's findings. Furthermore, our econometric results are robust and quite stable.

Date: 2009-09
New Economics Papers: this item is included in nep-bec and nep-mac
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Citations: View citations in EconPapers (1)

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