Synchronicity of Real and Financial Cycles and Structural Characteristics in EU Countries

41 Pages Posted: 26 Sep 2017

See all articles by Mariarosaria Comunale

Mariarosaria Comunale

Bank of Lithuania - Economics Department

Date Written: September 25, 2017

Abstract

In this paper, we examine the relationships between real, credit and house price cycles, by using a synchronicity index, and structural characteristics and macroeconomic variables of 17 EU countries. We find that the cycles between credit variables and the real cycle with the property or equity prices cycles seem relatively well synchronised. Credit and GDP fluctuations seem to be less synchronised, mostly because credit volumes tend to lag the real cycle by several quarters. The high rates of private homeownership tend to be associated with larger cycles in GDP, credit, and house prices. Higher Loan-To-Value ratios, seen as a proxy of borrowing constraints, and a higher percentage of flexible-rate mortgages, could also indicate that a country is more sensitive to shocks and possibly increase pro-cyclicality and increase cycle volatility. Finally, the pro-cyclicality of the credit and housing market to the GDP cycle can be linked to the fluctuation in current accounts and their misalignments with respect to the theoretical equilibrium value. The synchronicity and the cycles of credit may also be considered for signaling recessions.

Keywords: Cycles, Synchronicity, Housing Market, Credit, European Union

JEL Classification: E32, E44, F36

Suggested Citation

Comunale, Mariarosaria, Synchronicity of Real and Financial Cycles and Structural Characteristics in EU Countries (September 25, 2017). CEIS Working Paper No. 414, Available at SSRN: https://ssrn.com/abstract=3015890 or http://dx.doi.org/10.2139/ssrn.3015890

Mariarosaria Comunale (Contact Author)

Bank of Lithuania - Economics Department ( email )

Totoriu 4
Vilnius, LT-01121
Lithuania

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