TY - JOUR
T1 - Business cycle and financial cycle spillovers in the G7 countries
AU - Antonakakis, Nikolaos
AU - Breitenlechnerc, Max
AU - Scharler, Johann
N1 - NOTICE: this is the author’s version of a work that was accepted for publication in The Quarterly Review of Economics and Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in The Quarterly Review of Economics and Finance, (2015), DOI: 10.1016/j.qref.2015.03.002
PY - 2015/11
Y1 - 2015/11
N2 - In this study we examine the dynamic interactions between credit growth and output growth using the spillover index approach of Diebold and Yilmaz (2012). Based on quarterly data on credit growth and GDP growth over the period 1957Q1–2012Q4 for the G7 countries we find that: (i) spillovers between credit growth and GDP growth evolve rather heterogeneously over time and across countries, and increase during extreme economic events. (ii) Spillovers between credit growth and GDP growth are of bidirectional nature, indicating bidirectional spillovers of shocks between the financial and the real sector. (iii) In the period shortly before and during the global financial crisis, the link between credit growth and GDP growth becomes more pronounced. In particular, the financial sector plays a dominant role during the early stages of the crisis, while the real sector quickly takes over as the dominant source of spillovers. (iv) Interestingly, credit growth in the US is the dominant transmitter of shocks to the G7 countries, and especially to other G7 countries’ real sectors in the run up period to (and during) the global financial crisis. Overall, our results suggest that the magnitude and direction of spillovers between financial cycles and business cycles vary over time along with changes in the economic environment in the G7 countries.
AB - In this study we examine the dynamic interactions between credit growth and output growth using the spillover index approach of Diebold and Yilmaz (2012). Based on quarterly data on credit growth and GDP growth over the period 1957Q1–2012Q4 for the G7 countries we find that: (i) spillovers between credit growth and GDP growth evolve rather heterogeneously over time and across countries, and increase during extreme economic events. (ii) Spillovers between credit growth and GDP growth are of bidirectional nature, indicating bidirectional spillovers of shocks between the financial and the real sector. (iii) In the period shortly before and during the global financial crisis, the link between credit growth and GDP growth becomes more pronounced. In particular, the financial sector plays a dominant role during the early stages of the crisis, while the real sector quickly takes over as the dominant source of spillovers. (iv) Interestingly, credit growth in the US is the dominant transmitter of shocks to the G7 countries, and especially to other G7 countries’ real sectors in the run up period to (and during) the global financial crisis. Overall, our results suggest that the magnitude and direction of spillovers between financial cycles and business cycles vary over time along with changes in the economic environment in the G7 countries.
KW - Business cycle
KW - Financial cycle
KW - Spillovers
KW - Crisis
KW - Recession
U2 - 10.1016/j.qref.2015.03.002
DO - 10.1016/j.qref.2015.03.002
M3 - Article
SN - 1062-9769
VL - 58
SP - 154
EP - 162
JO - Quarterly Review of Economics and Finance
JF - Quarterly Review of Economics and Finance
ER -