The Nature of Financial and Real Business Cycles: The Great Moderation and Banking Sector Pro-Cyclicality

Balázs Égert and Douglas Sutherland

No 938, OECD Economics Department Working Papers from OECD Publishing

Abstract: This paper takes a fresh look at the nature of financial and real business cycles in OECD countries using annual data series and shorter quarterly and monthly economic indicators. It first analyses the main characteristics of the cycle, including the length, amplitude, asymmetry and changes of these parameters during expansions and contractions. It then studies the degree of economic and financial cycle synchronisation between OECD countries but also of economic and financial variables within a given country, and gauges the extent to which cycle synchronisation changed over time. Finally, the paper provides some new evidence on the drivers of the great moderation and analyses the banking sector’s pro-cyclicality by using aggregate and bank-level data. The main findings show that the amplitude of the real business cycle was becoming smaller during the great moderation, but asset price cycles were becoming more volatile. In part this was linked to developments in the banking sector which tended to accentuate pro-cyclical behaviour.

Cycles économiques et financiers : la grande modération et la pro-cyclicalité du secteur bancaire Ce papier analyse la nature des cycles économiques et financiers dans les pays de l'OCDE en utilisant des séries annuelles, trimestrielles et mensuelles. Il analyse d'abord les principales caractéristiques du cycle, y compris la durée, l'amplitude, l'asymétrie et les changements de ces paramètres au cours des expansions et contractions. Il étudie ensuite le degré de synchronisation des cycles économiques et financiers entre les pays de l'OCDE, mais aussi des variables économiques et financières dans un pays donné, et évalue dans quelle mesure la synchronisation des cycles a changé au fil du temps. Enfin, le papier fournit quelques éléments nouveaux sur les facteurs de la grande modération et étudie la pro-cyclicité du secteur bancaire en utilisant des données agrégées et des banques individuelles. Les principaux résultats montrent que l'amplitude du cycle réel diminuait durant la grande modération, mais les cycles des prix des actifs ont été de plus en plus volatiles. Cela était en partie liée à l'évolution du secteur bancaire qui avait tendance à accentuer le comportement pro-cyclique.

Keywords: banking system; cycles financiers; cycles économiques; financial cycles; financial markets; grande modération; great moderation; marchés financiers; real business cycles; système bancaire (search for similar items in EconPapers)
JEL-codes: E32 E44 (search for similar items in EconPapers)
Date: 2012-01-09
New Economics Papers: this item is included in nep-bec and nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://doi.org/10.1787/5k9h28k3gt24-en (text/html)

Related works:
Journal Article: The Nature of Financial and Real Business Cycles: The Great Moderation and Banking Sector Pro-Cyclicality (2014)
Working Paper: The Nature of Financial and Real Business Cycles: The Great Moderation and Banking Sector Pro-Cyclicality (2014)
Working Paper: The Nature of Financial and Real Business Cycles: The Great Moderation and Banking Sector Pro-Cyclicality (2012)
Working Paper: The nature of financial and real business cycles: The great moderation and banking sector pro cyclicality (2012)
Working Paper: The nature of financial and real business cycles: The great moderation and banking sector pro cyclicality (2012)
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:oec:ecoaaa:938-en

Access Statistics for this paper

More papers in OECD Economics Department Working Papers from OECD Publishing Contact information at EDIRC.
Bibliographic data for series maintained by ().