a b s t r a c tThis paper analyzes the interactions between business and financial cycles using an extensive database covering 44 countries for the period 1960:1-2010:4. Our analysis shows that there are strong linkages between the different phases of business and financial cycles. In particular, recessions associated with financial disruptions, notably house and equity price busts, tend to be longer and deeper than other recessions. Conversely, while recoveries following asset price busts tend to be weaker, recoveries associated with rapid growth in credit and house prices are often stronger. These findings emphasize the importance of financial market developments for the real economy.

for their comments, and Dio Kaltis for high-quality research assistance. This paper represents only the authors' views and not those of the International Monetary Fund, its Executive Board, its Management, or the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

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This paper was prepared for the Fifteenth Annual Conference of the Central Bank of Chile. We thank the discussant Luis Felipe Céspedes for his thoughtful comments, and the organizers for their kind invitation and hospitality. We are indebted to many conference participants for their comments and suggestions, particularly David Altig and José De Gregorio. We also thank to Stijn Claessens, Jörg Decressin, Ayhan Kose and Carmen Reinhart for their comments. This paper represents only the authors' views and not those of the International Monetary Fund, its Executive Board, or its Management. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

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