Credit and business cycles: Causal effects in the frequency domain

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BANCO DE LA REPÚBLICA - ESPE, Revista ESPE - ENSAYOS SOBRE POLÍTICA ECONÓMICA, ISSN: 0120-4483, Vol: 33, Issue: 78, Page: 176-189, No: 78

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Gómez-González, José Eduardo; Villamizar-Villegas, Mauricio; Zárate-Solano, Hector Manuel; Amador-Torres, Juan Sebastián; Gaitán-Maldonado, Celina
Centro de Apoyo a la Investigacion Economica; Banco de la República; Banco de la República de Colombia
Economics, Econometrics and Finance; Social Sciences; Dominio de la frecuencia; Causalidad de Granger; Interdependencia entre ciclos financieros y reales; E32 - Business Fluctuations; Cycles; E44 - Financial Markets and the Macroeconomy; C38 - Classification Methods; Cluster Analysis; Principal Components; Factor Analysis; Frequency domain; Granger causality; Credit and output cycle interdependence; Ciclos financieros -- Estudios comparados; Ciclos económicos -- Estudios comparados; Recesiones -- Estudios comparados; E32 - Fluctuaciones económicas; Ciclos; C38 - Métodos de clasificación; Análisis cluster; Análisis de componentes principales; Análisis factorial; Frequency domain, Granger causality, Credit and output cycle interdependence; Frequency domain; Granger causality; Credit and output cycle interdependence
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The history of economic recessions has shown that every deep downturn has been accompanied by disruptions in the financial sector. Paradoxically, up until the financial world crisis of 2007–2009, little attention was given to macroeconomic and financial interdependence. In this paper, a study is conducted on the relationship between financial and real business cycles for a sample of thirty-three countries in the frequency domain. Specifically, the features of the interdependence of credit and output cycles are analysed and Granger-type causality tests are carried out in the frequency domain. The main findings of the study indicate that the likelihood of cycle interdependence is highest when considering medium and long-term frequencies, and that Granger causality runs in both directions.