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The financial cycle and recession risk

Claudio Borio (), Mathias Drehmann () and Dora Xia

BIS Quarterly Review, 2018

Abstract: Financial cycle booms can end in crises and, even if they do not, they tend to weaken growth. Given their slow build-up, do they convey information about recession risk? We compare the predictive performance of different financial cycle proxies with that of the term spread - a popular recession indicator. In contrast to much of the literature, our analysis covers a large sample of advanced and emerging market economies. We find that, in general, financial cycle measures provide valuable information and tend to outperform the term spread.

JEL-codes: C33 E37 E44 (search for similar items in EconPapers)
Date: 2018
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