Finance and Synchronization

Cesa-Bianchi, Ambrogio; Imbs, Jean; Saleheen, Jumana

doi:10.2139/ssrn.2832225

Cited by 11 publications

(14 citation statements)

References 43 publications

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“…In a DSGE framework, Iacoviello () also finds that losses sustained by banks can produce sizeable, pronounced, and long‐lasting effects on business activity. Asteriou and Moudatsou () find that international trade helps to synchronize business cycles but only before the recent financial crisis and only for old EU countries, and Cesa‐Bianchi, Imbs, and Saleheen () conclude that financial linkages, conditional to common shocks, tend to result in less synchronised business cycles in 18 OECD countries; conditional to idiosyncratic shocks, however, financial flows result in more synchronised cycles. Moreover, as pointed out by Meller and Metiu () deeper financial integration and a higher degree of business cycle comovement are associated with stronger credit cycle synchronization.…”

Section: Literature Reviewmentioning

confidence: 99%

New synchronicity indices between real and financial cycles: Is there any link to structural characteristics and recessions in European Union countries?

Comunale¹

2020

Int. J Fin Econ

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In this paper, we examine the comovements and relationships between real, credit, house, and equity price cycles in European Union countries looking at their link to structural characteristics and their predictive power for future recessions. We make use of new within country synchronicity indices, finding that among the different credit cycles and between the house price cycle and the real cycle, there is a relatively high level of synchronicity. Credit and gross domestic product (GDP) fluctuations seem to be less synchronised, mostly because credit volumes tend to lag the real cycle by several quarters. The high rates of private homeownership tend to be associated with larger cycles in GDP, credit, and house prices. Higher loan-to-value ratios, seen as a proxy of borrowing constraints, and a higher percentage of flexible-rate mortgages, could also indicate that a country is more sensitive to shocks and possibly increase procyclicality and increase cycle volatility. Finally, the procyclicality of the credit and housing market to the GDP cycle can be linked to the fluctuation in current accounts and their misalignments with respect to the theoretical equilibrium value. Some synchronicity measures and, above all, the credit cycles may also be considered for signalling future recessions. KEYWORDS credit cycles, house and equity price cycles, housing market, panel probit, real cycles, synchronicity JEL CLASSIFICATION E32; E44; F36 1 INTRODUCTION In this study, we investigate the comovements and relationships between real, credit, house, and equity price cycles in European Union (EU) countries looking at their link to structural characteristics and their predictive power for future recessions. We make use of newly calculated within country synchronicity indices for these purposes. Recently, several papers have focused on the importance of a deeper analysis of financial cycles (Borio, 2012; Borio,

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Section: Literature Reviewmentioning

confidence: 99%

New synchronicity indices between real and financial cycles: Is there any link to structural characteristics and recessions in European Union countries?

Comunale¹

2020

Int. J Fin Econ

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“…Next, we analyze co-movements between equilibrium interest rates. To do so, we rely on a standard synchronization measure from the GDP growth literature (Morgan et al 2004, Giannone et al 2008, Kalemli-Ozcan et al 2013, Cesa-Bianchi et al 2019. We define , as the absolute bilateral differential in r* changes:…”

Section: Co-movement Of Equilibrium Interest Rates Across Countries a Synchronizationmentioning

confidence: 99%

“…In other words, , conflates co-movement and dispersion. 24 Against this background, Cesa-Bianchi et al (2019) propose an extension to control for the existence of common shocks with country-specific effects. They suggest two additional measures based on the straightforward assumption that the variable of interest is impacted by a vector of common shocks Ϝ with heterogeneous country loadings :…”

Section: Co-movement Of Equilibrium Interest Rates Across Countries a Synchronizationmentioning

confidence: 99%

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Dynamics and Synchronization of Global Equilibrium Interest Rates

Beyer¹,

Milivojevic²

2020

Policy Research Working Papers

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With the COVID-19 pandemic, the intense debate about secular stagnation will become even more important. Empirical estimates of equilibrium real interest rates are so far mostly limited to advanced economies, since no statistical procedure suitable for a large set of countries is available. This is surprising, as equilibrium rates have strong policy implications in emerging markets and developing economies as well; current estimates of the global equilibrium rate rely on only a few countries; and estimates for a more diverse set of countries can improve understanding of the drivers. This paper proposes a model and estimation strategy that decompose ex ante real interest rates into a permanent and transitory component even with short samples and high volatility. This is done with an unobserved component local level stochastic volatility model, which is used to estimate equilibrium rates for 50 countries with Bayesian methods. Equilibrium rates were lower in emerging markets and developing economies than in advanced economies in the 1980s, similar in the 1990s, and have been higher since 2000. In line with economic integration and rising global capital markets, synchronization has been rising over time and is higher among advanced economies. Equilibrium rates of countries with stronger trade linkages and similar demographic and economic trends are more synchronized.

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“…On the other hand, results by Kalemli-Ozcan et al (2013a) and Kalemli-Ozcan et al (2013b) suggest that a higher degree of financial integration entails diverging patterns of economic activity. Cesa-Bianchi et al (2019) argue that the nature of the shock, common (negative effect) or country-specific (positive effect), is what matters for synchronization.…”

Section: Motivationmentioning

confidence: 99%

Financial Linkages and Sectoral Business Cycle Synchronization: Evidence from Europe

Boehm¹,

Schaumburg

Tonzer

2020

SSRN Journal

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We analyze whether financial integration between countries leads to converging or diverging business cycles using a dynamic spatial model. Our model allows for contemporaneous spillovers of shocks to GDP growth between countries that are financially integrated and delivers a scalar measure of the spillover intensity at each point in time. For a financial network of ten European countries from 1996-2017, we find that the spillover effects are positive on average but much larger during periods of financial stress, pointing towards stronger business cycle synchronization. Dismantling GDP growth into value added growth of ten major industries, we observe that some sectors are strongly affected by positive spillovers (wholesale & retail trade, industrial production), others only to a weaker degree (agriculture, construction, finance), while more nationally influenced industries show no evidence for significant spillover effects (public administration, arts & entertainment, real estate).

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Finance and Synchronization

Cited by 11 publications

References 43 publications

New synchronicity indices between real and financial cycles: Is there any link to structural characteristics and recessions in European Union countries?

New synchronicity indices between real and financial cycles: Is there any link to structural characteristics and recessions in European Union countries?

Dynamics and Synchronization of Global Equilibrium Interest Rates

Financial Linkages and Sectoral Business Cycle Synchronization: Evidence from Europe

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