Temporal homogeneity between financial stress and the economic cycle

Raputsoane, Leroi (2018): Temporal homogeneity between financial stress and the economic cycle.

Abstract

This paper analyses the homogeneity of temporal variations between the economic and financial cycles in South Africa. This is achieved by identifying the similarity of cyclical and volatility regime changes between the indicator of financial stress and the economic cycle. The results show that periods of moderate growth in financial stress coincide with periods of similar growth in the economic cycle whereas the periods of high growth in financial stress coincide with periods of low growth in the economic cycle. The results further show that the periods of low volatility of financial stress coincide with periods of similar volatility of the economic cycle and that the periods of high volatility of financial stress coincide with periods of similar volatility of the economic cycle with the exception of the period following the US war on terror where the volatility of the economic cycle remained low despite high volatility of financial stress. Although the results show that the cyclical regime shifts of financial stress occur earlier than those of the economic cycle, they do not conclusively show whether or not the volatility regime changes of financial stress occur earlier or later than those of the economic cycle perhaps on data frequency.

• Item Type: MPRA Paper
• Language: English
• Keywords: Economic cycle, Financial stress, Change point analysis
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C13 - Estimation: General; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates

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