 Business and financial cycle across regimes: Does financial stress matter?Noemi Giampaoli, Marco Cucculelli and Valerio Sullo International Review of Economics & Finance, 2024, vol. 96, issue PB Abstract: Identifying the business and financial cycles and their regimes is crucial for understanding the economy's state and financial market dynamics. Using a bivariate four-regime Markov-switching framework, we assess the accuracy of a model that identifies the business cycle by combining financial and real variables and compare it to a model that only uses real variables. We find that a model that incorporates information from a financial stress index outperforms a model based solely on real variables, not only during a financial crisis, but also, and more interestingly, during economic downturns. The empirical evidence provides insights for policymakers and investors to improve economic policy formulation, investment strategies, strategic decision-making, and proactive risk management. The results are robust to various model specifications. Keywords: Financial regime; Markov-switching; Business cycle; Financial cycle; Financial stress index (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:96:y:2024:i:pb:s1059056024006373 DOI: 10.1016/j.iref.2024.103645 Access Statistics for this article International Review of Economics & Finance is currently edited by H. Beladi and C. Chen More articles in International Review of Economics & Finance from Elsevier |
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