Towards a financial cycle for the U.S., 1973–2014
Dirk J. Bezemer and
Jan Jacobs ()
The North American Journal of Economics and Finance, 2019, vol. 50, issue C
With this paper, we suggest a new approach to estimating financial cycles in terms of interactions of real-sector and financial-sector sentiments. We will apply this to U.S. financial indicators from 1973 to 2014. Based on Schumpeter’s and Minsky’s financial cycle concepts, we arrive at a selection of six indicators that capture finance and real sector linkages: the slope of the yield curve, a Purchasing Managers’ Index, real-estate price returns, the S&P stock price index, and leverage ratios of households (consumer spending) and non-financial corporations. We estimate lead-lag relations and apply principal component analysis to aligned series in order to construct factors. Our conclusion is that two factors, capturing corporate and consumer sentiments, account for over 60% of the cumulative variance in our data. Corporate optimism peaks before crisis episodes, while household/consumer sentiment is more persistent and follows corporate sentiment with a lag.
Keywords: Cycles; Corporate sentiment; Household sentiment; Principal components; Factor models (search for similar items in EconPapers)
JEL-codes: C13 C38 E32 E44 (search for similar items in EconPapers)
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Working Paper: Towards a financial cycle for the US, 1973-2014 (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:50:y:2019:i:c:s1062940818305643
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