We study the within-country dimension of financial cycles in the four largest euro area economies using tools from wavelet analysis. We focus on credit and house price cycles which are most commonly used to represent the financial cycle. With the exception of Germany, the variables contain important common cycles within each country close to the upper bound of business cycle length and beyond which can be interpreted as financial cycles. These cycles are closely linked to domestic cycles in real activity showing financial and real economic cycles as interconnected phenomena. For these common cycles, credit and house prices lag real GDP.
This paper is part of a broader on-going effort to bring a more cross-country perspective to bilateral surveillance, taking advantage of a cluster of Article IV consultations with five systemically important economies concluded in July. With the five economies—the United States, the Euro area, China, Japan, and the United Kingdom—accounting for two-thirds of global output and three quarters of capital flows, the nature of linkages and consistency of policy responses across the systemic five (S5) has important implications for the world economy.