Joint Decomposition of Business and Financial Cycles: Evidence from Eight Advanced Economies*

Abstract

AbstractWe discuss a model‐based simultaneous decomposition of multiple time series in short‐term and medium‐term cyclical dynamics. We associate short‐term dynamic features with the business cycle and medium‐term dynamic features with the financial cycle. For eight advanced economies, we analyse a set of macroeconomic and financial time series data. A strong and common finding among all economies is the co‐cyclicality of medium‐term cycles, especially those corresponding to house price and gross domestic product variables. We also find empirical evidence that the house price is partly driven by the credit cycle. Most cyclical movements in the country‐specific time series appear to be driven by domestic rather than global factors.