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Characterizing the financial cycle: evidence from a frequency domain analysis

Till Strohsal, Christian R. Proaño and Juergen Wolters

No 189-2017, IMK Working Paper from IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute

Abstract: This paper introduces parametric spectrum estimation to the analysis of financial cycles. Our contribution is to formally test properties of financial cycles and to characterize their international interaction in the frequency domain. Existing work argues that the financial cycle is considerably longer in duration and larger in amplitude than the business cycle and that its distinguishing features became more pronounced over time. Also, a global cycle, being driven by US monetary policy, is said to be behind national financial cycles. We provide strong statistical evidence for the US and slightly weaker evidence for the UK validating the hypothesized features of the national financial cycle. In Germany, however, the financial cycle is much less visible. Similarly, a US-driven global financial cycle significantly affects national cycles in the UK but not in Germany.

Keywords: Financial Cycle; Business Cycle; Indirect Spectrum Estimation; Bootstrapping Inference. (search for similar items in EconPapers)
JEL-codes: C22 E32 E44 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2017
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Related works:
Working Paper: Characterizing the Financial Cycle: Evidence from a Frequency Domain Analysis (2015) Downloads
Working Paper: Characterizing the financial cycle: Evidence from a frequency domain analysis (2015) Downloads
Working Paper: Characterizing the Financial Cycle: Evidence from a Frequency Domain Analysis (2015) Downloads
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