![]() ![]() Indeed, in the following articles we will explore its role in detail. ![]() With respect to the first factor, the financial liberalisation that has occurred in recent decades has facilitated access to credit but, at the same time, it has also made the financial cycle more sensitive to players’ attitude to risk. What, then, do they depend on? Three main factors have been identified, namely: the financial system, monetary policy and the economic-institutional system. Of course, the characteristics of the financial cycle do not fall from the sky. 3 In other words, the financial cycle amplifies the real business cycle. This close association between the financial cycle and financial crises can help us to understand the significant impact that the financial cycle has on the real economy: recessions in advanced economies are twice as severe when they coincide with the contractionary phase of the financial cycle. In other words, the seeds of crises are sown during the booms of the financial cycle! The reason for this is that, during boom periods, the risk incurred by economic and financial players increases, and this amplifies the credit boom and the rise in asset prices, in what is the prelude to a future crisis. Furthermore, the peaks of the financial cycle occur close to the outbreak of financial crises of a domestic origin, something common to the rest of advanced economies. ![]() Moreover, it has lengthened over the years. ![]() As can be seen in the first chart, the resulting cycle lasts longer than the real business cycle. In his seminal article on the financial cycle, 2 Borio combined the information on these two variables in the US to obtain a measure of the financial cycle. The domestic financial cycle is characterised by the evolution of credit and housing prices: credit provides a good description of the restrictions in access to financing for households and businesses, while prices reflect economic and financial players’ perceptions of the value of their assets, as well as the risk associated with them. Today, a distinction is made between the domestic financial cycle and the global financial cycle, to the point that the economist from the Bank for International Settlements (BIS) Claudio Borio 1 speaks of a «tale of two cycles», paraphrasing the great Charles Dickens. While there is no universal definition of the financial cycle, the expression denotes how interactions between economic and financial players’ perceptions and attitudes towards risk, coupled with the financing and credit conditions in the economy, end up generating cycles of boom and bust in the main financial variables. However, following the 2008 financial crisis, we realised that it was not possible to analyse the macro-financial cycle without taking financial factors into account, and this gave rise to a new concept: the financial cycle. the ups and downs in the production of goods and services) were the main focus of our studies for decades. Economists, believe it or not, are also human and we are no exception. If you don’t believe us, just ask all the coaches who have been dismissed with a trite «He had reached the end of his cycle». ![]()
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