We suggest a new approach to estimating financial cycles, as interactions of real-sector and financial-sector sentiments. We apply this to the U.S. financial indicators over 1973-2014. Based on financial cycle concepts of Schumpeter and Minsky, we motivate the selection of six indicators which capture finance-real sector linkages: the slope of the yield curve, a Purchasing Managers' Index, real estate price returns, the S&P stock price index and leverage ratios of households and non-financial corporations. We estimate lead-lag relations and apply principal component analysis on aligned series to construct factors. We find that two factors, capturing corporate and household sentiments, account for over 60% of the cumulative variance in our data. Corporate optimism peaks before crisis episodes while households' sentiment is more persistent and follows with a lag corporate semtiment.

My humble acknowledgments to my family, friends and the teachers I met. I would like to thank my supervisor Prof. Dirk Bezemer for the research freedom to select topics and methods to present my take on the U.S. financial cycle. I thank my co-author Jan Jacobs for believing in my research skills and contributing to the broader research exposure. I am grateful to the reading committee, Prof. S.J. Koopman, Prof. R.C. Inklaar, and Prof. H. Bo for the time they invested to read this thesis and suggested improvements. You truly know the nature of things when they are in constant change. The duality in nature such as life and death, good and evil is the engine of this motion. The blissful steady-state would stop the process of knowing yourself.