Assessing the cross-country interaction of financial cycles: evidence from a multivariate spectral analysis of the USA and the UK

Till Strohsal (), Christian Proaño and Juergen Wolters
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Till Strohsal: Freie Universität Berlin

Empirical Economics, 2019, vol. 57, issue 2, No 1, 385-398

Abstract: Abstract In recent times, a large number of studies has investigated the empirical properties of financial cycles within countries, mainly based on band-pass filter techniques. The contribution of this paper to the literature is twofold. First, in contrast to most existing studies in the financial cycle literature, we perform a multivariate parametric frequency domain analysis which takes the complete (cross-) spectrum into account and not only certain frequencies. Second, we provide evidence on the cross-country interaction of financial cycles. We focus on the USA and UK and use frequency-wise Granger causality analysis as well as structural break tests to obtain three main results. The relation between cycles has recently intensified. There is a significant Granger causality from the US financial cycle to the UK financial cycle, but not the other way around. This relationship is most pronounced for cycles between 8 and 30 years.

Keywords: Financial cycle; Vector autoregressions; Indirect spectrum estimation; Coherency; Granger causality (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (4)

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Working Paper: Assessing the Cross-Country Interaction of Financial Cycles: Evidence from a Multivariate Spectral Analysis of the US and the UK (2017)
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DOI: 10.1007/s00181-018-1471-2

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