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Synchronicity of real and financial cycles and structural characteristics in EU countries

Mariarosaria Comunale

No 414, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: In this paper, we examine the relationships between real, credit and house price cycles, by using a synchronicity index, and structural characteristics and macroeconomic variables of 17 EU countries. We find that the cycles between credit variables and the real cycle with the property or equity prices cycles seem relatively well synchronised. Credit and GDP fluctuations seem to be less synchronised, mostly because credit volumes tend to lag the real cycle by several quarters. The high rates of private homeownership tend to be associated with larger cycles in GDP, credit, and house prices. Higher Loan-To-Value ratios, seen as a proxy of borrowing constraints, and a higher percentage of flexible-rate mortgages, could also indicate that a country is more sensitive to shocks and possibly increase pro-cyclicality and increase cycle volatility. Finally, the pro-cyclicality of the credit and housing market to the GDP cycle can be linked to the fluctuation in current accounts and their misalignments with respect to the theoretical equilibrium value. The synchronicity and the cycles of credit may also be considered for signaling recessions.

Keywords: cycles; synchronicity; housing market; credit; European Union (search for similar items in EconPapers)
JEL-codes: E32 E44 F36 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2017-09-25, Revised 2017-09-25
New Economics Papers: this item is included in nep-eec, nep-mac, nep-opm and nep-ure
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