Potential Dependence of Financial Cycles between Emerging and Developed Countries: Based on ARIMA-GARCH Copula Model

Abstract

ABSTRACT The characteristics and dependence structures of financial cycles have become a central issue in macroeconomic policy. Our study quantifies the dependence of financial cycles in emerging and developed countries in January 1993–December 2017. We fit the marginal distributions of the financial cycles by applying an ARIMA-GARCH model and capture the dependence structures by selecting the optimal copula model. Our main findings indicate that the financial cycle has obvious characteristics that can be roughly divided into three stages. ARIMA (2,1,2) and GARCH (1,1) are fit the marginal distribution of the financial cycle. Emerging countries show more interdependence and a higher degree of dependence than developed countries. Several important policy and economic implications can be drawn from the empirical results of this study.