Post-1960 Financial Cycles
May 27, 2011 - Big Ideas, Calendar Effects
Are there recognizable country and global financial cycles over the past half century? If so, what are their characteristics? In their April 2011 paper entitled “Financial Cycles: What? How? When?”, Stijn Claessens, Ayhan Kose and Marco Terrones employ regression models to investigate cycles in credit, housing and equity markets for developed countries since 1960. They define a downturn as peak to trough and an upturn as trough to level of previous peak (not trough to new peak). They define series peaks and troughs with the constraints that complete cycle duration must be at least five quarters and each upturn and downturn must be at least two quarters. The main characteristics of cyclical phases are their duration, amplitude and slope, with crunches/busts (booms) defined as downturns (upturns) in the bottom (top) fourth of all observations. They examine pre-globalization (1960-1985) and globalization (1986-2007) subperiods, with phases globally synchronized (highly synchronized) when more than 40% (50%) of countries experience the same phase. Using quarterly data for aggregate loans to the private sector, house/land price indexes and value-weighted stock market indexes for 21 developed countries over the period 1960 through 2007, seasonally adjusted as necessary, they find that: Keep Reading