Export file:

Format

  • RIS(for EndNote,Reference Manager,ProCite)
  • BibTex
  • Text

Content

  • Citation Only
  • Citation and Abstract

PIIGS in and out of sync: the changing face of financial business cycle synchronization in Europe

1 Department of Economics, University of Peloponnese, Senior Analyst, Consignment Deposits and Loans Fund, Greece
2 Eurobank Ergasias S.A, Greece

Special Issue: Financial Business Cycle

We examine the average expansion and contraction magnitude and their average duration for the PIIGS, Portugal, Italy, Ireland, Greece and Spain. We then examine the synchronization of financial and economic variables, namely GDP, equity and housing prices and credit to GDP, between themselves in the same country and between the same variable across countries, to examine their behaviour over the financial business cycle. We found that equity prices expanded and contracted more than the other variables but the difference between expansion and contraction is not significant. Their average duration is shorter than the other variables and housing prices exhibit the longer average duration. We observe a positive synchronization between GDP and household prices for both tested periods for all countries except Ireland and between GDP and household prices for Italy and Portugal respectively. In addition, there is a negative synchronization between equity prices and gaps between GDP to both the countries and the periods examined. There is a positive synchronization between short-term equity and housing prices for all countries, with the exception of Italy, with a negative one for all countries, with the exception of Ireland. The results of the synchronization between the same variable across countries are mixed. Our conclusions may have implications for the design of macro-prudential policies in an environment prone to interdependence between economies.
  Figure/Table
  Supplementary
  Article Metrics

Keywords financial cycle; business cycle; synchronization; Portugal; Italy; Ireland; Greece; Spain

Citation: Andreas Tsalas, Platon Monokroussos. PIIGS in and out of sync: the changing face of financial business cycle synchronization in Europe. Quantitative Finance and Economics, 2018, 2(1): 261-278. doi: 10.3934/QFE.2018.1.261

References

  • 1.Adrian T, Shin H (2010) Financial intermediaries and monetary economics, in Friedman B and Woodford M (eds), Handb Monet Econ, Amsterdam: North Holland, 601–650.
  • 2.Aikman D, Haldane A, Nelson B (2010) Curbing the credit cycle, paper presented at the Columbia University Center on Capitalism and Society Annual Conference, New York, November.
  • 3.Aikman D, Haldane AG, Nelson BD (2015) Curbing the credit cycle. Econ J 125: 1072–1109.    
  • 4.Alessi L, Detken C (2009) Real time early warning indicators for costly asset price boom/bust cycles: A role for global liquidity. ECB Working Paper 1039.
  • 5.Avdjiev S, McCauley R, McGuire P (2012) Rapid credit growth and international credit: Challenges for Asia. BIS Working Papers 377.
  • 6.Avouyi-Dovi S, Matheron J (2005) Interactions between Business Cycles, Financial Cycles and Monetary Policy: Stylised Facts. BIS Papers 22: 273–298.
  • 7.Borio, C (2007) Monetary and prudential policies at a crossroads? New challenges in the new century, Moneda y Crédito 224: 63–101. Also available as BIS Working Papers, no 216, September 2006.
  • 8.Borio C (2012) On time, stocks and flows: understanding the global macroeconomic challenges, lecture at the Munich Seminar series, CESIfo-Group and Sueddeutsche Zeitung, 15 October, BIS Speeches, www.bis.org/speeches/sp121109a.htm.
  • 9.Borio C (2014) The financial cycles and macroeconomics: What have we learnt? J Bank Financ 45: 182–198.    
  • 10.Borio C, Drehmann M (2009) Assessing the risk of banking crises. BIS Q Rev 29: 257–261.
  • 11.Borio C, Furfine C, Lowe P (2001) Procyclicality of the financial system and financial stability: Issues and policy options in Marrying the macro- and micro-prudential dimensions of financial stability. BIS Papers 1–57.
  • 12.BorioC, Lowe P (2002) Assessing the risk of banking crises. BIS Q Rev 43–54.
  • 13.Borio C, McCauley R, McGuire P (2011) Global credit and domestic credit booms. BIS Q Rev 43–57.
  • 14.Borio C, Disyatat P, Juselius M (2013) Rethinking Potential Output: Embedding Information from the Financial Cycle. BIS Working Paper 404: 1–29.
  • 15.Brunnermeier, M and Y Sannikov (2012) A macroeconomic model with a financial sector, Princeton mimeo.
  • 16.Caraiani P (2016) Business Cycle Accounting for Peripheral European Economies. Scottish J Political Econ 63: 468–496.    
  • 17.Chari VV, Kehoe PJ, McGrattan ER (2007) Business Cycle Accounting. Econom 75: 781–836.    
  • 18.Christiano LJ, Motto R, Rostagno M (2010) Financial Factors in Economic Fluctuations. European Central Bank Working paper Ser 1192: 1–91.
  • 19.Choi CY, Mark N, Sul D (2004) Unbiased Estimation of the Half-Life to PPP Convergence in Panel Data.
  • 20.Claessens S, Kose MA, Terrones ME (2012) How Do Business and Financial Cycles Interact? J Int Econ 87: 178–190.    
  • 21.Comin D, Gertler M (2006) Medium-term business cycles. Am Econ Rev 96: 523–551.    
  • 22.Danielsson J, Shin HS, Zigrand JP (2004) The impact of risk regulation on price dynamics. J Bank Financ 28: 1069–1087.    
  • 23.Dell'Arriccia G, Igan D, Laeven L et al. (2012) Policies for macrofinancial stability: How to deal with credit booms. IMF Discussion Note, April.
  • 24.Drehmann M, Borio C, Tsatsaronis K (2012) Characterising the financial cycle: don't lose sight of the medium term! BIS Working Paper.
  • 25.Egert B, Sutherland D (2012) The Nature of Financial and Real Business Cycles: The Great Moderation and Banking Sector Pro-Cyclicality. OECD Econ Department Working Papers 938: 1–40.
  • 26.English W, Tsatsaronis K, Zoli E (2005) Assessing the predictive power of measures of financial conditions for macroeconomic variables. BIS Papers 228–252.
  • 27.Fagan G, Gaspar V (2007) Adjusting to the Euro. Working Paper no.716. Frankfurt: European Central Bank.
  • 28.Fisher I (1933) The Debt-Deflation Theory of the Great Depressions. Econom 1: 337–357.    
  • 29.Gilchrist S, Yankov V, Zakrajsek, E (2009) Credit Market Shocks and Economic Fluctuations: Evidence from Corporate Bond and Stock Markets. J Monetary Econ 56: 471–93.    
  • 30.Harding D (2008) Detecting and Forecasting Business Cycle Turning Points. MPRA Paper.
  • 31.Harding D, Pagan A (2006) Synchronization of cycles. J Econom 132: 59–79.
  • 32.Hatzius J, Hooper P, Mishkin F, Schoenholtz K, Watson M (2010) Financial conditions indexes: a fresh look after the financial crisis. NBER Working Papers.
  • 33.Jorda O, Schularick M, Taylor A (2011) Financial crises, credit booms, and external imbalances: 140 years of lessons. IMF Econ Rev 59: 340–378.    
  • 34.Kashyap A, Stein J (2004) Cyclical implications of the Basel II capital standards. Federal Reserve Bank Chic Econ Perspect 28: 18–31.
  • 35.Kersting EK (2008) The 1980s recession in the UK: A business cycle accounting perspective. Rev Econ Dyn 11: 179–191.    
  • 36.Keynes JM (1936) The general theory of employment interest and money. Moggridge, D.E. (Ed.), Vol. VII, The Collected Writings of John Maynard Keynes (1973).
  • 37.Lama R (2011) Accounting for Output Drops in Latin America. Rev Econ Dyn 14: 295–316.    
  • 38.López JR, García MS (2016) Accounting for Spanish business cycles. Macroecon Dyn.
  • 39.Mendoza EG (2006) Lessons from the Debt-Deflation Theory of Sudden Stops. Am Econ Rev 96: 411–416.    
  • 40.Nath HK, Sarkar J (2009) Unbiased Estimation of the Half-Life to Price Index Convergence among U.S. Cities. J Money, Credit Bank 41: 1041–1046.
  • 41.Ng T (2011) The predictive content of financial cycle measures for output fluctuations. BIS Q Rev 53–65.
  • 42.Orsi R, Turino F (2014) The last fifteen years of stagnation in Italy: a business cycle accounting perspective. Empir Econ 47: 469–474.    
  • 43.Otsu K (2010) A Neoclassical Analysis of the Asian Crisis: Business Cycle Accounting of a Small Open Economy. B E J Macroecon 10.
  • 44.Saijo H (2008) The Japanese Depression in the Interwar Period: A General Equilibrium Analysis. B E J Macroecon 8: 1614.
  • 45.Schularick M, Taylor A (2012) Credit booms gone bust: Monetary policy, leverage cycles, and financial crises, 1870–2008. Am Econ Rev 102: 1029–1061.    
  • 46.Thomakos D, Papailias F (2014) Out of synch: The breakdown of economic sentiment cycles in the E.U.. Rev Int Econ 1: 131–150.
  • 47.Woodford M (2003) Interest and prices: Foundations of a theory of monetary policy, Princeton: Princeton University Press.

 

Reader Comments

your name: *   your email: *  

© 2018 the Author(s), licensee AIMS Press. This is an open access article distributed under the terms of the Creative Commons Attribution Licese (http://creativecommons.org/licenses/by/4.0)

Download full text in PDF

Export Citation

Copyright © AIMS Press All Rights Reserved