The Impact of Global Tensions on the Economic and Financial Cycle in Romania

Authors

  • Andreea Maria Muraru The Bucharest University of Economic Studies

DOI:

https://doi.org/10.18662/po/11.3/202

Keywords:

financial cycle, global tensions, factor analysis, comovement, historical decomposition

Abstract

In this paper I investigated the impact of global financial tensions (approximated by the common factor in the evolution of market volatility indexes in the US and the Euro area – VIX, VSTOXX, VFTSE) on the Romanian financial and economic cycle. As measures for the financial cycle I used multiple indicators following the literature on the subject (credit variables, bond yields, house prices and GDP) and I investigated the impact of global tensions on each of the selected variables and also on an aggregate measure of the financial and economic cyclical position, which I built by applying factor analysis. The influence of global tensions was studied by use of wavelet coherence, concordance indicators and historical decomposition. The results showed important correlations of global tensions with the selected variables and also with the cyclical position indicator. Moreover, the concordance indicator (computed by the use of Bry-Boschan algorithm for quarterly series on the band-pass filtered series) showed that indicators were in the same cyclical position with the global financial evolutions most of the time (the indicator varying between 54 percent and 70 percent of the time), therefore the local cyclical position (built out of the considered indicators) coincided with the cycle of global tensions in 60 percent of cases. Historical decomposition was performed in Bayesian VARs estimated for each of the variables and the global tensions indicator. The results showed a great impact, dominant at times, of global shocks on the evolution of the selected variables and on the cyclical position indicator.

References

Aguiar-Conraria, L., & Soares, M. (2014). The continuous wavelet transform: Moving beyond uni- and bivariate analysis. Journal of Economic Surveys, 28, 344-375. https://doi.org/10.1111/joes.12012

Aguiar-Conraria, L., Azevedo, N., & Soares, M. (2008). Using wavelets to decompose the time–frequency effects of monetary policy. Physica A, 387, 2863-2878. https://doi.org/10.1016/j.physa.2008.01.063

Aikamn, D., Haldane, A., & Nelson B.D. (2015). Curbing the credit cycle. The Economic Journal, 125, 1072-1109. https://doi.org/10.1111/ecoj.12113

Aldasoro, I., Avdjiev, S., Borio, C., & Disyatat, P. (2020). Global and domestic financial cycles: variations on a theme. BIS Working Papers, 864. https://www.bis.org/publ/work864.pdf

Benes, J., Laxton, D., & Mongardini, J. (2016). Mitigating the deadly embrace in financial cycles; countercyclical buffers and loan-to-value limits. IMF Working Papers, 16/87. https://www.imf.org/en/Publications/WP/Issues/2016/12/31/Mitigating-the-Deadly-Embrace-in-Financial-Cycles-Countercyclical-Buffers-and-Loan-to-Value-43860

Borio, C. (2014). Monetary policy and financial stability: what role in prevention and recovery? BIS Working Papers, 440. https://www.bis.org/publ/work440.htm

Breitung, J., & Eickmeier S. (2016). Analysing international business and financial cycles using multi-level factor models. In J. Hillebrand & S.J. Koopman (Eds.) Advances in Econometrics, 35, (pp. 177-214). Emerald Insight. https://www.econstor.eu/bitstream/10419/98718/1/790216825.pdf

Boz, E., & Tesar, L. (2019). The Global Financial Cycle. IMF Econ Rev 67, 1–3. https://doi.org/10.1057/s41308-019-00076-2

Bruno, V., & Shin, H. S. (2015). Capital flows and the risk-taking channel of monetary policy. Journal of Monetary Economics, 71, 119-132. https://doi.org/10.1016/j.jmoneco.2014.11.011

Cazelles, B., Chavez, M., Berteaux, D., Menard, F., Vik, J., Jenouvrier, S., & Stenseth, N. (2008). Wavelet analysis of ecological time series. Oecologia, 32(7), 287-304. https://doi.org/10.2307/40213251

Claessens, S., A., Kose, A., & Terrones, M. (2011). Financial cycles: What? How? When?. Centre for Economic Policy Research Working Papers, 8379. https://EconPapers.repec.org/RePEc:cpr:ceprdp:8379

Claessens, S., A., Kose, A., & Terrones, M. (2012). Journal of International Economics, 87(1), 178-190. https://doi.org/10.1016/j.jinteco.2011.11.008

Comunale, M. (2017). Synchronicity of real and financial cycles and structural characteristics in EU countries. Occasional Paper Series, 15. Bank of Lithuania. https://www.lb.lt/en/publications/no-15-synchronicity-of-real-and-financial-cycles-and-structural-characteristics-in-eu-countries

Dées, S., & Gales, A. (‎2019). The Global Financial Cycle and US Monetary Policy in an Interconnected World. Banque de France Working Papers, 744. https://publications.banque-france.fr/en/global-financial-cycle-and-us-monetary-policy-interconnected-world

Dieppe, A., van Roye, B., & Legrand, R. (2018). The BEAR toolbox. https://www.ecb.europa.eu/pub/research/working-papers/html/bear-toolbox.en.html

Drehmann, M., Borio, C., Gambacorta, L., Jiménez, G., & Trucharte, C. (2010). Countercyclical capital buffers: exploring options. BIS Working Papers, 317. https://www.bis.org/publ/work317.htm

Drehmann, M., Borio, C., & Tsatsaronis, K. (2011). Anchoring countercyclical capital buffers: the role of credit aggregates. BIS Working Papers, 355. https://www.bis.org/publ/work355.pdf

Drehmann, M., Borio, C., & Tsatsaronis, K. (2012). Characterising the financial cycle: don’t lose sight of the medium term!. BIS Working Papers, 380. https://www.bis.org/publ/work380.htm

Engel, J. (2019). Business Cycle Dating Programs (BBQ). Matlab code. http://www.ncer.edu.au/resources/data-and-code.php

Gadanecz, B., & Jayaram, K. (2016). Macroprudential policy frameworks, instruments and indicators: a review. In Irving Fisher Committee Bulletin No 41: Combining micro and macro statistical data for financial stability analysis. BIS. https://www.bis.org/ifc/publ/ifcb41c_rh.pdf

Grinsted, A. (2004). Cross Wavelet and Wavelet Coherence Toolbox. http://www.glaciology.net/wavelet-coherence

Haavio, M. (2012). Financial Cycles and Business Cycles: Some Stylised Facts. Bank of Finland, BoF Online. https://helda.helsinki.fi/bof/handle/123456789/8432

Kunovac, D., Mandler, M., & Scharnagl, M. (2018). Financial Cycles in Euro Area Economies: A Cross-Country Perspective. Working Papers. Croatian National Bank. https://bit.ly/2DbXEMe

Lutkepohl, H. (2011). Vector autoregressive models. EUI Working Papers. https://cadmus.eui.eu/bitstream/handle/1814/19354/ECO_2011_30.pdf

Miranda-Agrippino, S., & Rey, H. (2020a). The Global Financial Cycle after Lehman. AEA Papers and Proceedings, 110, 523-528. https://www.aeaweb.org/articles?id=10.1257/pandp.20201096

Miranda-Agrippino, S., & Rey, H. (2020b). U.S. Monetary Policy and the Global Financial Cycle, The Review of Economic Studies, rdaa019. https://doi.org/10.1093/restud/rdaa019

Muraru, A. (2019). Co-movement and synchronicity of business and financial cycles in Romania and other EEMS. Proceedings of the IE 2019 International Conference, 453-458. https://bit.ly/3jnSrjF

Rünstler, G., & Vlekke, M. (2016). Business, housing and credit cycles. ECB Working Paper, 1915. https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1915.en.pdf

WGEM Team on Real and Financial Cycles. (2018). Real and financial cycles in EU Countries: stylised facts and modelling implications. ECB Occasional Paper, 205. https://www.ecb.europa.eu/pub/pdf/scpops/ecb.op205.en.pdf

Downloads

Published

2020-10-05

How to Cite

Muraru, A. M. (2020). The Impact of Global Tensions on the Economic and Financial Cycle in Romania. Postmodern Openings, 11(3), 115-128. https://doi.org/10.18662/po/11.3/202

Issue

Section

Research Articles

Similar Articles

You may also start an advanced similarity search for this article.


Publish your work at the Scientific Publishing House LUMEN

It easy with us: publish now your work, novel, research, proceeding at Lumen Scientific Publishing House

Send your manuscript right now