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Capturing the financial cycle in Europe

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  • Stremmel, Hanno

Abstract

In this study, we approximate the financial cycle in Europe by combining potential common and relevant financial indicators. We consider different credit aggregates and asset prices but also incorporate banking sector indicators for 11 European countries. We develop seven different synthetic financial cycle measures in order to best capture the characteristics of the financial cycle. We assess the various financial cycle measures using both graphical and statistical investigation techniques. The best fitted financial cycle measure includes the following financial ingredients: credit to GDP ratio, credit growth and house prices to income ratio. This study also highlights potential applications for the financial cycle measure in the macro-prudential policy context. JEL Classification: E30, E44, E61, G18, G28

Suggested Citation

  • Stremmel, Hanno, 2015. "Capturing the financial cycle in Europe," Working Paper Series 1811, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20151811
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    More about this item

    Keywords

    Financial crises; financial cycle; financial regulation; medium-term;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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