A unified approach for jointly estimating the business and financial cycle, and the role of financial factors

Arbeitspapier

We jointly estimate the U.S. business and financial cycle through a unified empirical approach while simultaneously accounting for the role of financial factors. Our approach uses the Beveridge-Nelson decomposition within a medium-scale Bayesian Vector Autoregression. First, we show, both in reduced form and when we identify a structural financial shock, that variation in financial factors had a larger role post-2000 and a more modest role pre-2000. Our results suggest that the financial sector did play a role in overheating the business cycle pre-Great Recession. Second, while we document a positive unconditional correlation between the credit cycle and the output gap, the correlation of the lagged credit cycle and the contemporaneous output gap turns negative when we condition on a financial shock. The sign-switch suggests that the nature of the underlying shocks may be important for understanding the relationship between the business and financial cycles.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: cege Discussion Papers ; No. 415

Classification and Topics

• Classification: Wirtschaft ; Methodological Issues: General ; Money Supply; Credit; Money Multipliers ; Business Fluctuations; Cycles
• Subject: Business Cycle ; Financial Cycle ; Financial shocks

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Berger, Tino ; Richter, Julia ; Wong, Benjamin
• Event: Veröffentlichung
• (who): University of Göttingen, Center for European, Governance and Economic Development Research (cege)
• (where): Göttingen
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/232064
• Last update: 10.03.2025, 11:44 AM CET