The globalisation of finance and increased international linkages of financial markets between economies have focused attention on the potential role of domestic and international financial cycles as a cause of fluctuations in national asset prices and in heightened risks to financial stability. A financial cycle captures systematic patterns in the financial system that can have important macroeconomic consequences and is closely related to the concept of procyclicality in the financial system. Both across countries and over long periods of time, regular financial cycles are clearly identifiable, are distinct from the business cycle in their frequency and amplitude, typically presage financial crises and play an important role in the current policy debate on how to increase the resilience of the financial system. Despite these stylised facts, we are still far from understanding the properties of the financial cycle compared to our knowledge of the features of the business cycle. This course will therefore review the evidence on the patterns of financial cycles, discuss conventional and alternative approaches to the measurement of financial cycles, discuss their causes and consequences and examine possible policy responses.
At the end of the course, participants will be able to: (1) describe the facts, models and policy implications of financial cycles; (2) evaluate the usefulness of early warning indicators of financial stress/crises; and (3) assess the appropriateness and effectiveness of various policy responses, including macroprudential policy, to the evolution of financial cycles.
Central bank middle/high-level officers either from monetary policy or financial stability departments and who are involved in analysing and assessing the use of monetary policy and macroprudential policy to promote macroeconomic and financial stability.
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