This paper provides a comprehensive analysis of financial cycles using a large database covering 21 advanced countries over the period 1960:1-2007:4. Specifically, we analyze cycles in credit, house prices, and equity prices. We report three main results. First, financial cycles tend to be long and severe, especially in housing and equity markets. Second, they are highly synchronized within countries, particularly credit and house price cycles. The extent of synchronization of financial cycles across countries is high as well, mainly for credit and equity cycles, and has been increasing over time. Third financial cycles accentuate each other and become magnified, especially during coincident downturns in credit and housing markets. Moreover, globally synchronized downturns tend to be associated with more prolonged and costly episodes, especially for credit and equity cycles. We discuss how these findings can guide future research on various aspects of financial market developments.

Gyrations in financial markets have greatly influenced real activity around the world over the past two decades. Following the largest housing bubble in its modern history, Japan experienced a massive asset market crash in the early 1990s, which marked the start of its “Lost Decade.” After prolonged credit booms, many emerging economies in Asia faced deep financial crises in the second half of the 1990s. The equity market booms of the late 1990s in many advanced economies ended with simultaneous busts and recessions. The 2008-2009 crisis is the latest in a long list of economic events shaped by cycles in financial markets. The objective of this paper is to provide a comprehensive empirical overview of financial cycles. We ask three specific questions. First, what are the main features of financial cycles? Second, how synchronized are financial cycles within and across countries? Third, when does the coincidence of cycles lead to magnified financial outcomes? In order to answer these questions, we employ an extensive database of cycles in credit, house prices, and equity prices for a large number of advanced countries over a long period.