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Empirical Economics

, Volume 57, Issue 2, pp 385–398 | Cite as

Assessing the cross-country interaction of financial cycles: evidence from a multivariate spectral analysis of the USA and the UK

  • Till Strohsal
  • Christian R. ProañoEmail author
  • Jürgen Wolters
Article
  • 85 Downloads

Abstract

In recent times, a large number of studies has investigated the empirical properties of financial cycles within countries, mainly based on band-pass filter techniques. The contribution of this paper to the literature is twofold. First, in contrast to most existing studies in the financial cycle literature, we perform a multivariate parametric frequency domain analysis which takes the complete (cross-) spectrum into account and not only certain frequencies. Second, we provide evidence on the cross-country interaction of financial cycles. We focus on the USA and UK and use frequency-wise Granger causality analysis as well as structural break tests to obtain three main results. The relation between cycles has recently intensified. There is a significant Granger causality from the US financial cycle to the UK financial cycle, but not the other way around. This relationship is most pronounced for cycles between 8 and 30 years.

Keywords

Financial cycle Vector autoregressions Indirect spectrum estimation Coherency Granger causality 

Notes

Acknowledgements

We are grateful for comments and suggestions received from Helmut Lütkepohl, Dieter Nautz, Christian Merkl, Lars Winkelmann, Sven Schreiber, and various participants at seminars at the Swiss National Bank and the IAB Nürnberg, as well as at the 2015 IAAE and the 2016 CFE conferences. Financial support from the Deutsche Forschungsgemeinschaft (DFG) through CRC 649 “Economic Risk” and by the Macroeconomic Policy Institute (IMK) in the Hans-Böckler Foundation is gratefully acknowledged.

Supplementary material

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  • Till Strohsal
    • 1
  • Christian R. Proaño
    • 2
    Email author
  • Jürgen Wolters
    • 1
  1. 1.Freie Universität BerlinBerlinGermany
  2. 2.Otto-Friedrich-Universität BambergBambergGermany

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