Gerhard Rünstler et al. Real and financial cycles in EU countries: Stylised facts and modelling implications
Occasional Paper Series 1/2018
Hiona Balfoussia, Lorenzo Burlon, Ginters Buss, Mariarosaria Comunale, Bruno De Backer, Hans Dewachter, Paolo Guarda, Markus Haavio, Irma Hindrayanto, Nikolai Ivanov Iskrev, Ivan Jaccard, Dmitry Kulikov, Davor Kunovac, Crt Lenarcic, Matthieu Lequien, Matija Lozej, Martin Mandler, Dimitris Papageorgiou, Jesper Pedersen, Gabriel Perez-Quiros, Ansgar Rannenberg, Eyno Rots, Gerhard Rünstler, Michael Scharnagl, Peter Welz*
This paper studies the cyclical properties of real GDP, house prices, credit, and nominal liquid financial assets in 17 EU countries, by applying several methods to extract cycles. The estimates confirm earlier findings of large medium-term cycles in credit volumes and house prices. GDP appears to be subject to fluctuations at both business-cycle and medium-term frequencies, and GDP fluctuations at medium-term frequencies are strongly correlated with cycles in credit and house prices. Cycles in equity prices and long-term interest rates are considerably shorter than those in credit and house prices and have little in common with the latter. Credit and house price cycles are weakly synchronous across countries and their volatilities vary widely – these differences may be related to the structural properties of housing and mortgage markets. Finally, DSGE models can replicate the volatility of cycles in house and equity prices, but not the persistence of house price cycles.
JEL Codes: C32, E32, E44
Keywords: financial cycles, syncronicity, real-time estimates, DSGE models
*The occasional paper should not be reported as representing the views of the European Central Bank (ECB), the Bank of Greece, the Bank of Italy, Latvijas Banka, the Bank of Lithuania, the National Bank of Belgium, Banque centrale du Luxembourg, the Bank of Finland, De Nederlandsche Bank, Banco de Portugal, Eesti Pank, Croatian National Bank, the Bank of Slovenia, Banque de France, Central Bank of Ireland, Deutsche Bundesbank, Danmarks Nationalbank, Banco de España or Magyar Nemzeti Bank. The views expressed are those of the authors.