Joint Decomposition of Business and Financial Cycles: Evidence from Eight Advanced Economies*

Winter, Jasper de; Koopman, Siem Jan; Hindrayanto, Irma

doi:10.1111/obes.12459

Cited by 10 publications

(8 citation statements)

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“…The financial cycle has been one of the hot topics since the global financial crisis. Its volatility is often associated with fluctuations in credit, housing, bond, and equity markets (see Li et al, 2021;de Winter et al, 2022). On this basis, a large number of studies have obtained the durations and amplitudes of national/global financial cycles based on data from single or multiple financial submarkets as mentioned above.…”

Section: Introductionmentioning

confidence: 99%

The mean reversion/persistence of financial cycles: Empirical evidence for 24 countries worldwide

Zhang²,

Fan³

et al. 2023

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Research background: The globalization trend has inevitably enhanced the connectivity of global financial markets, making the cyclicality of financial activities and the spread of market imbalances have received widespread attention, especially after the global financial crisis. Purpose of the article: To reduce the negative effects of the contagiousness of the financial cycles, it is necessary to study the persistence of financial cycles and carve out the total connectedness, spillover paths, and sources of risks on a global scale. In addition, understanding the relationship between the financial cycle and economic development is an important way to prevent financial crises. Methods: This paper adopts the nonlinear smoothing transition autoregressive (STAR) model to extract cyclical and phase characteristics of financial cycles based on 24 countries during 1971Q1?2015Q4, covering developed and developing countries, the Americas, Europe, and Asia regions. In addition, the frequency connectedness approach is used to measure the connectedness of financial cycles and the relationship between the global financial cycle and the global economy. Findings & value added: The analysis reveals that aggregate financial cycles persist for 13.3 years for smoothed and 8.7 years for unsmoothed on average. The national financial cycles are asynchronous and exhibit more prolonged expansions and faster contractions. The connectedness of financial cycles is highly correlated with systemic crises and contributes to the persistence and harmfulness of shocks. It is mainly driven by short-term components and exhibits more pronounced interconnectedness within regions than across regions. During the financial crisis, the global financial cycle movements precede and are longer than the business fluctuations. Based on the study, some policy implications are presented. This paper emphasizes the impact of systemic crises on the persistence of financial cycles and their connectedness, which contributes to refining research related to the coping mechanisms of financial crises.

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Section: Introductionmentioning

confidence: 99%

The mean reversion/persistence of financial cycles: Empirical evidence for 24 countries worldwide

Zhang²,

Fan³

et al. 2023

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“…Also on the UK, Cornea‐Madeira and Madeira examine the impact of using backward‐looking versus forward‐looking methods to determine inflation expectations on the Phillips curve, finding an increase in backward‐looking behaviour in response to the 1973 and 1979 oil crises and in 2000. Winter et al. investigate the co‐movement of financial and macroeconomic variables across many countries, extracting long‐, medium‐, and short‐term cycles.…”

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confidence: 99%

Review of periodical literature for 2022: (vi) post‐1945

Paker

2024

The Economic History Review

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The periodical literature 1945-present demonstrates a variety of methodological approaches to important questions. The ever-increasing availability of data series that stretch far into the past has brought a historical flair to many papers in economics, while papers in history have increasingly abstracted away from specific case studies to broader trends. However, this focus on the long run and the bigger picture has not obscured the cleavages in society by gender, education, region, race, and class that have defined and delineated economic experiences from 1945 to the present, which are a focus of many articles. Many papers also dealt with contemporary concerns, such as the lingering impacts of the COVID-19 pandemic, disruptions to global trade, and the cost of living, at their best reminding us of the through lines from the challenges of the past to the present.Gender was a focus of articles in 2022 and was addressed from many disciplinary perspectives. Sutcliffe-Braithwaite and Thomlinson explore the feminist ideologies of working-class women in mining communities in the 1960s-1980s through oral history. They find that these women held a 'vernacular' feminism focused on autonomy and being seen as an equal to their husbands, rather than positions that emphasized economic equality such as in second-wave feminism. Barnes and Newton, use the Barclays archives to examine the introduction of uniformed female personal bankers in 1977. The objective was to make banking more accessible, counteracting elite stereotypes, but the uniformed women were sexualized in some Barclays advertising. The women working these positions, however, felt the uniforms legitimized their important role in the bank. Bargain et al. develop a theoretical model calibrated to the UK to analyse resource sharing within households. They find that a single child commands 14 per cent of household resources, with most of the children's resources taken from the woman's share of resources. The increase in women's share in household resources since the 1970s is primarily owing to a 'growing pie' rather than more equitable sharing within households.A common theme was gender gaps in economic outcomes. Jones and Kaya explore the recent gender pay gap in Northern Ireland using Oaxaca-Blinder decompositions, finding a smaller gap than in the rest of the UK but unequal returns by gender to 'productivity-related characteristics' such as educational attainment. Theodoropoulos et al. analyse linked employee-employer data 376

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“…2 ) ∼ N (0.85, 0.015 2 ) for the macrofinancial factors, (ϕ M 1 + ϕ M 2 ) ∼ N (0.75, 0.015 2 ) for the macro factors and (ϕ F 1 + ϕ F 2 ) ∼ N (0.95, 0.015 2 ) for the financial factors. On the difference in the persistence of the factors we take guidance from existing studies reporting that financial cycles are considerably longer than business cycles and that business and financial cycles tend to be correlated at a medium-term cycle length Winter, Koopman, and Hindrayanto, 2022). The prior on the first lag of each factor is much less informative.…”

Section: Ar(2) Parameters Of Factors ϕ Mmentioning

confidence: 99%

“…. Other studies use Unobserved Components (UC) models to jointly decompose macroeconomic and financial variables into trend and cycle and in a second step analyze the relationship between the cycles Winter, Koopman, and Hindrayanto, 2022). The analysis of macro-financial linkages on the basis of a decomposition into trend and cycle is an improvement with respect to the analyses based on growth rates, as the latter might discard important information in the variables by taking first differences of the data.…”

Section: Introductionmentioning

confidence: 99%

“…We note that existing studies analyze the similarities between the size and length of business and financial cycles across countries from a joint trend-cycle decomposition Winter, Koopman, and Hindrayanto, 2022), or by means of factor models analyzing the co-movement in growth rates of real activity and financial variables . In this paper, we aim to bridge these different parts of the empirical literature and, consequently, take a fully joint approach in modeling macro-financial linkages across the G7 economies.…”

Section: Introductionmentioning

confidence: 99%

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Business and Financial Cycles in a Globalized World

Richter¹

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Estimated output gaps with and without financial variables . . . . . 4.6 Contribution of the financial shock to the estimated output gap . . 4.7 Contribution of the identified financial shock for 2002Q1-2005Q4 . . 4.8 Contribution of the financial shock to the estimated financial cycles 4.9 Impulse response function to a one standard deviation financial shock103 4.C.1 Informational decomposition of the estimated stock price cycle. . . . 4.E.2 Comparison of impulse response functions all identification schemes 4.E.

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Joint Decomposition of Business and Financial Cycles: Evidence from Eight Advanced Economies*

Cited by 10 publications

References 47 publications

The mean reversion/persistence of financial cycles: Empirical evidence for 24 countries worldwide

The mean reversion/persistence of financial cycles: Empirical evidence for 24 countries worldwide

Review of periodical literature for 2022: (vi) post‐1945

Business and Financial Cycles in a Globalized World

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