DP5037 A Cross-Country Financial Accelerator: Evidence from North America and Europe

Author(s): Ashoka Mody, Lucio Sarno, Mark P Taylor
Publication Date: May 2005
Keyword(s): credit cycle, financial accelerator, international business cycles, Kalman filter
JEL(s): E32, E51, F36
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5037

A growing literature has examined the importance of credit market imperfections for macroeconomic fluctuations, the so-called financial accelerator. A related literature has provided evidence of international and regional co-movements in macroeconomic fluctuations. We tie together these strands of the literature in that we investigate the importance of both cross-country and country-specific credit cycles in explaining output fluctuations. Using data for four major economies and two world regions from 1973 to 2001, we find that both regional and country-specific components of indicators of credit availability are powerful in explaining output movements. This research provides the first empirical evidence of a cross-country financial accelerator.