Abstract
Financial cycles as a source of financial crisis and business cycles that was demonstrated during the financial crisis of 2008, so it is important to understand proper methods of measuring and forecasting them to unravel their true nature. We searched financial big data for the UK, USA, Japan and China for a period 2004Q1 to 2019Q1 to find important data corresponding to the research and determine their importance for the financial cycle studies. We use singular spectral analysis (SSA without financial big data) and multichannel singular spectral analysis (MSSA with financial big data) to identify significant deterministic cycles in the residential property prices, credits to private non-financial sector and credit share in the GDP. The forecast test results show on the data for the UK, USA, Japan and China that inclusion of the financial big data significantly (on the level from 30% to four times) improves forecast accuracy for financial cycle components. This is a first study on the importance of the link between financial cycles and financial big data. Policymakers, practitioners and financial cycles research should take into the account the importance of financial big data for the studies of financial cycles for a better understanding of their true nature and improving their forecast accuracy.
Highlights
The global financial crisis of 2008 after decades of the great moderation policy governance opened the discussion of the financial stability importance for economic activity
We can observe that forecasts we get using (MSSA) for the period 2017 Q2 – 2019 Q1 for the residential property prices, credit to private non-financial sector, credit share in the GDP in the United Kingdom (UK) are far superior to the one we get using (SSA)
We can notice a significant increase in the forecast accuracy for the credit share in the GDP time series data with residual errors being 2 to 3 times lower if we use financial big data and (MSSA) for forecasting
Summary
The global financial crisis of 2008 after decades of the great moderation policy governance opened the discussion of the financial stability importance for economic activity. Phillips (1962) put forward the assumption that policymakers can not design effective economic policy without quantitative knowledge behind the main economic. Since more contemporary studies show financial conditions articulate real economic activity dynamics and business cycles, understanding the true nature of the financial cycles is of crucial importance for unravelling business cycles. We present empirical results discussion and implications in section four, while part five bring up conclusions on the role and importance of financial big data for financial and economic stability analysis
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