The nature of financial and real business cycles: The great moderation and banking sector pro cyclicality

Balázs Égert and Douglas Sutherland

No 2012-15, EconomiX Working Papers from University of Paris Nanterre, EconomiX

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.

Keywords: real business cycles; financial cycles; great moderation; banking system; financial markets (search for similar items in EconPapers)
JEL-codes: E32 E44 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2012
New Economics Papers: this item is included in nep-ban, nep-eec and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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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)
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Persistent link: https://EconPapers.repec.org/RePEc:drm:wpaper:2012-15

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