Towards a financial cycle for the U.S., 1973–2014

Abstract

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.

Financial Cycles in the Economy and in Economic Research: A Case Study in China

“…Financial variables or indicators, such as bond prices and purchasing managers' index (PMI), are also considered in the literature. For instance, Rozite et al (2019) took PMI into account and discussed financial cycles for the USA. For a broad measure of financial cycles regarding G-7 countries, Schüler et al (2020) highlighted that the bond prices should also be included.…”