Comparing the dynamics of financial and business cycles in the BRICS countries

Abstract

Subject. The BRICS countries are among the fastest developing and growing economies. However, research on relationship between their financial and business cycles is insufficient. The article intends to address this gap and provide such information. Objectives. The aim is to determine the main characteristics of cycle phases (amplitude and duration) for the BRICS countries and to assess the degree of their synchronization. Methods. The study employs an algorithm for periodization of various phases of financial and business cycles, proposed by D. Harding and A. Pagan in 2003, the analysis of concordance coefficients to determine the degree of synchronization of different cycles, and the logistic regression to quantify the probability of recession in the real sector, if there is a crisis in the financial sector. Results. The findings revealed a high degree of synchronization of financial and business cycles in the BRICS countries, comparable to the EU member States. At the same time, the degree of synchronization changes during crisis events and after political decisions. The degree of synchronization of business cycles turns out to be much higher than financial cycles. Conclusions. The findings should be considered when coordinating the economic policies of the BRICS countries. Using certain fiscal, monetary, or macroprudential tools, countries should take into account that their decisions will also affect other member countries of this organization.