Model-based Business Cycle and Financial Cycle Decomposition for Europe and the U.S

Siem Jan Koopman, Rutger Lit and Andre Lucas
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Rutger Lit: VU University Amsterdam, the Netherlands

No 16-051/IV, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: We develop a multivariate unobserved components model to extract business cycle and financial cycle indicators from a panel of economic and financial time series of four large developed economies. Our model is flexible and allows for the inclusion of cycle components in different selections of economic variables with different scales and with possible phase shifts. We find clear evidence of the presence of a financial cycle with a length that is approximately twice the length of a regular business cycle. Moreover, cyclical movements in credit related variables largely depend on the financial cycle, and only marginally on the business cycle. Property prices appear to have their own idiosyncratic dynamics and do not substantially load on business or financial cycle components. Systemic surveillance policies should therefore account for the different dynamic components in typical macro financial variables.

Keywords: financial cycle, business cycle, phase shift, multivariate state space model, Kalman filtering; panel time series (search for similar items in EconPapers)
JEL-codes: C22 E32 (search for similar items in EconPapers)
Date: 2016-07-11
New Economics Papers: this item is included in nep-ecm, nep-eec and nep-mac
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20160051

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