A Statistical Measure Of Financial Cycle Spillovers

In the context of international financial liberalization and economic integration,the inherent interaction mechanism between finance and economy,as well as the liquidity between financial markets in various regions,has led to major economic prosperity or crisis,and has spread rapidly throughout the world.In this paper,a state space model is used to construct the quarterly financial cycle index including credit,interest rates,exchange rates,stock prices and real estate prices for China and the G7 countries from 1990 to 2018.Then,the DY spillover index and rolling window regression technique are used to quantify the spillover effect of China's financial cycle on the economic cycle.This paper focuses on the spatial spillover effect of China's financial cycle.The conclusions are as follows: first,the frequency of China's financial cycle has periods of between 6 to 10 years and tends to become lower.However,the frequency is not stable,and there is a clear growth trend from the first cycle to the third cycle.The amplitude of China's financial cycle has decreased since 2010;second,there is an inherent interaction between China's financial cycle and economic cycle,reflecting the bidirectional spillover effect of finance and economy.The spillover effects of China's financial cycle on the economic cycle are heterogeneous in different economic environments and financial systems;third,the US appears to be the country which is more affected by China's financial cycle shocks,reflecting its cross-country trade links and financial linkages with China;fourth,China appears to transmit spillovers in financial cycle expansions and receive them in financial cycle recessions.The large variability in China's financial cycle net spillover index is present and the index is associated with specific events.