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Quantitative Finance and Economics

2018, Volume 2, Issue 1: 261-278. doi: 10.3934/QFE.2018.1.261
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PIIGS in and out of sync: the changing face of financial business cycle synchronization in Europe

  • 1.
    Department of Economics, University of Peloponnese, Senior Analyst, Consignment Deposits and Loans Fund, Greece
  • 2.
    Eurobank Ergasias S.A, Greece
  • Received: 09 July 2017 Accepted: 06 December 2017 Published: 13 March 2018

  • JEL Codes: E32

  • We examine the average expansion and contraction magnitude and their average duration for the PIIGS, Portugal, Italy, Ireland, Greece and Spain. We then examine the synchronization of financial and economic variables, namely GDP, equity and housing prices and credit to GDP, between themselves in the same country and between the same variable across countries, to examine their behaviour over the financial business cycle. We found that equity prices expanded and contracted more than the other variables but the difference between expansion and contraction is not significant. Their average duration is shorter than the other variables and housing prices exhibit the longer average duration. We observe a positive synchronization between GDP and household prices for both tested periods for all countries except Ireland and between GDP and household prices for Italy and Portugal respectively. In addition, there is a negative synchronization between equity prices and gaps between GDP to both the countries and the periods examined. There is a positive synchronization between short-term equity and housing prices for all countries, with the exception of Italy, with a negative one for all countries, with the exception of Ireland. The results of the synchronization between the same variable across countries are mixed. Our conclusions may have implications for the design of macro-prudential policies in an environment prone to interdependence between economies.

    Citation: Andreas Tsalas, Platon Monokroussos. PIIGS in and out of sync: the changing face of financial business cycle synchronization in Europe[J]. Quantitative Finance and Economics, 2018, 2(1): 261-278. doi: 10.3934/QFE.2018.1.261

    Related Papers:

  • We examine the average expansion and contraction magnitude and their average duration for the PIIGS, Portugal, Italy, Ireland, Greece and Spain. We then examine the synchronization of financial and economic variables, namely GDP, equity and housing prices and credit to GDP, between themselves in the same country and between the same variable across countries, to examine their behaviour over the financial business cycle. We found that equity prices expanded and contracted more than the other variables but the difference between expansion and contraction is not significant. Their average duration is shorter than the other variables and housing prices exhibit the longer average duration. We observe a positive synchronization between GDP and household prices for both tested periods for all countries except Ireland and between GDP and household prices for Italy and Portugal respectively. In addition, there is a negative synchronization between equity prices and gaps between GDP to both the countries and the periods examined. There is a positive synchronization between short-term equity and housing prices for all countries, with the exception of Italy, with a negative one for all countries, with the exception of Ireland. The results of the synchronization between the same variable across countries are mixed. Our conclusions may have implications for the design of macro-prudential policies in an environment prone to interdependence between economies.


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