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Title:A financial sector balance approach and the cyclical dynamics of the US economy PDF Logo
Authors:Casadio, Paolo
Paradiso, Antonio
Issue Date:2009
Series/Report no.:Working paper, Levy Economics Institute 576
Abstract:This paper investigates the relationship between asset markets and business cycles with regard to the United States economy. We consider the Goldman Sachs approach (2003) developed to study the dynamics of financial balances. By means of a small econometric model we find that asset market dynamics are fundamental to determining the long-run financial sector balance dynamics. The gap between long-run equilibrium values and the actual values of the financial balances help to explain the cyclical path of the economy. Among all financial sectors balances, the financing gap in the corporate sector shows a leading effect on business cycles, in a Minskyan spirit. The last results appear innovative with respect to Goldman Sachs's findings. Furthermore, our econometric results are robust and quite stable.
Subjects:financial balance
asset markets
business cycle
financing gap
cointegration
DLS
JEL:C50
E12
E17
E20
Document Type:Working Paper
Appears in Collections:Working Papers, Levy Economics Institute of Bard College

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