- 1815-1973 (online)
Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.
The Nature of Financial and Real Business Cycles
The Great Moderation and Banking Sector Pro-Cyclicality
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- Balázs Égert, Douglas Sutherland1
- Author Affiliations
- 1: OECD, France
- 09 Jan 2012
- Bibliographic information
This paper takes a fresh look at the nature of financial and real business cycles in OECD countries using annual data series and shorter quarterly and monthly economic indicators. It first analyses the main characteristics of the cycle, including the length, amplitude, asymmetry and changes of these parameters during expansions and contractions. It then studies the degree of economic and financial cycle synchronisation between OECD countries but also of economic and financial variables within a given country, and gauges the extent to which cycle synchronisation changed over time. Finally, the paper provides some new evidence on the drivers of the great moderation and analyses the banking sector’s pro-cyclicality by using aggregate and bank-level data. The main findings show that the amplitude of the real business cycle was becoming smaller during the great moderation, but asset price cycles were becoming more volatile. In part this was linked to developments in the banking sector which tended to accentuate pro-cyclical behaviour.
- financial markets, real business cycles, great moderation, banking system, financial cycles
- JEL Classification:
- E32: Macroeconomics and Monetary Economics / Prices, Business Fluctuations, and Cycles / Business Fluctuations ; Cycles
- E44: Macroeconomics and Monetary Economics / Money and Interest Rates / Financial Markets and the Macroeconomy