Short and medium term financial-real cycles: An empirical assessment

Abstract

Theories such as Minsky's financial instability hypothesis or New Keynesian financial accelerator models assign a key role to financial factors in business cycle dynamics. We present descriptive statistics and a simple estimation framework to examine the financial-real interaction mechanisms that are at the core of these theories. Specifically, we examine cycle frequencies in seven OECD countries over the period 1970 to 2015, and find that interest rates, business debt, and household debt exhibit cycle lengths of 4-6, 8-11, and 14-26 years, respectively. We then estimate bivariate VAR models which provide evidence for financialreal interaction mechanisms, (i) at high frequencies between interest rates and GDP, and (ii) at low frequencies between business debt and GDP. In contrast, there is no evidence for a cycle mechanism between household debt and GDP.

Exchange rate dynamics, balance sheet effects, and capital flows. A Minskyan model of emerging market boom-bust cycles

“…depreciation), while the currency behaves like a predator that grows together with the prey. Stockhammer et al (2019) argue that such an endogenous real-financial interaction mechanism lies at the heart of theories of financial-real cycles such as Hyman Minsky's Financial Instability Hypothesis (Minsky, 2008(Minsky, [1975(Minsky, ], 2016(Minsky, [1982; for a survey see Nikolaidi and Stockhammer, 2017).…”

Financial stability aspects of monetary policy transmission in developing countries: empirical evidence from Kazakhstan

“…In particular, we focus on credit-to-GDP growth in five years, log(credit-to-GDP t )log(credit-to-GDP t-20 ) relative to its mean. However, some authors argue that longer periods better capture sustained credit growth, signaling the Earlier studies identified structural connections between credit growth and output, such that countries with financially driven business cycles and countries with faster credit growth before the 2007 crisis experienced deeper and more prolonged recessions (Stockhammer et al, 2019;Bezemer and Zhang, 2019).…”

“…Due to the availability of shorter time series in the case of Kazakhstan in general, we are constrained on choosing 20 quarters windows. Earlier studies identified structural connections between credit growth and output, such that countries with financially driven business cycles and countries with faster credit growth before the 2007 crisis experienced deeper and more prolonged recessions (Stockhammer et al , 2019; Bezemer and Zhang, 2019).…”

An update on Kalecki–Minsky modelling

“…These cycles tend to be longer than regular business cycles, with roughly double their duration. Stockhammer et al (2018a) test for endogenous cycle mechanisms based on simple debt cycle Minsky models, where cycles are generated from the interaction of a financial and a real variable, by using a VAR methodology for seven advanced economies. They estimate a series of 2D systems and test for complex eigenvalues and whether the relevant coefficients have the predicted signs.…”

“…. Strictly speaking,Stockhammer et al (2018a) test two necessary conditions for the cycles and test the interaction mechanism that can generate a cycle.An update on Kalecki-Minsky modelling 185 © 2019 The Author Journal compilation © 2019 Edward Elgar Publishing Ltd Downloaded from Elgar Online at 09/01/2020 08:21:24PM via free access…”