Financial cycles in Europe: dynamics, synchronicity and implications for business cycles and macroeconomic imbalances

Using dynamic factor models and state-space techniques we quantify financial cycles for twenty European countries over the period 1960Q1–2015Q4 capturing imbalances across credit, housing, bond equity markets. The paper documents existence of slow-moving persistent cycles, as well cross-country synchronicity patterns in Europe. Spillover analysis points at significant role global cycle regional play shaping national market dynamics. Quarterly Bayesian panel VAR estimations suggest that influence business public debt dynamics, with stronger shock transmission observed euro area systemic economies.