Business and Financial Cycles in a Globalized World

Abstract

This dissertation consists of three independent research papers and contributes to the empirical analysis of the interaction between business and financial cycles from different perspectives. The first paper uses a non-linear multilevel dynamic factor model to better understand the changing patterns of international business cycle synchronization in a large set of countries over time. Time-variation is endogenously determined by the data with a Bayesian stochastic model specification search instead of a priori specified. The second paper adds the dimension of financial and asset markets and examines the relative importance of macro-financial linkages for business cycles in advanced economies. Business cycles are defined by the output gap and the empirical model combines a trend-cycle decomposition with a multilevel dynamic factor model. The third paper focuses on the role of financial factors for the U.S. business cycle as measured by the output gap. The output gap is estimated via the Beveridge-Nelson decomposition within a medium-scale Bayesian Vector Autoregression while making use of standard SVAR tools.