FINANCIAL CYCLES IN THE ECONOMY AND IN ECONOMIC RESEARCH: A CASE STUDY IN CHINA

Yong Qin,Zeshui Xu,Marinko Škare,Małgorzata Porada-Rochoń,Xinxin Wang

doi:10.3846/tede.2021.15439

Abstract

This work explores the relationship between financial cycles in the economy and in economic research. To this aim, we take China as an empirical example, and an intuitive bibliometric analysis of selected terms concerning financial cycles in economic research is performed first. Both in the economy and in economic research, we then conduct singular spectrum analysis to further isolate and describe the specific length and amplitude of financial cycles for China based on quarterly time-series data. Finally, according to the estimated cycles that detrended by Hodrick-Prescott filter for financial and bibliometric variables, the Granger causality test scrutinizes the results of the first two steps. Moreover, a time-varying parameter vector autoregression model is estimated to quantitatively investigate the time-varying interaction between financial and bibliometric variables. Our study shows that financial cycles have a strong effect on the developments in the financial-related literature. In particular, the 2008 global financial crisis’s impulse intensity is significantly higher than in other periods. Surprisingly, discussions on financial cycles in the literature also have an impact on financial activities in real life. These findings contribute to nascent work on the patterns in financial cycles, thus providing a new and effective insight on the interpretation of financial activities.

Highlights

Financial cycles play a significant role in the macroeconomic dynamics of modern economies and have a great impact on real economic activities around the world (Schularick & Taylor, 2009)
The proxy indicators for financial cycles assessment are relevant to financial recessions, i.e., the depressions that coincide with banking crises (Jordà et al, 2013; Schüler et al, 2020)
The captured and identified financial cycles in the economy and in economic research are given in Subsection 2.2, and Subsection 2.3 clarifies the links between financial activities and the development in financial research

Summary

Introduction

Financial cycles play a significant role in the macroeconomic dynamics of modern economies and have a great impact on real economic activities around the world (Schularick & Taylor, 2009). In contrast with business cycles, recessions concerned with financial disruptions are deeper and long-lasting (Shen et al, 2019). For this reason, an intensive debate on the concept and nature of financial cycles sprang up from researchers and policymakers (Lee et al, 2017). Characterizing financial cycles from empiricism and theory has increasingly become a significant research field (Claessens et al, 2011; Strohsal et al, 2019b)

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Conclusion