Measuring real and financial cycles in Luxembourg: An unobserved components approach
|Paolo Guarda and Alban Moura
We use unobserved components time series models to extract real and ﬁnancial cycles for Luxembourg over the period 1980Q1-2018Q2. We ﬁnd that ﬁnancial cycles are longer and have larger amplitude compared to standard business cycles. Furthermore, ﬁnancial cycles are highly correlated with cycles in GDP. We compare our results to other approaches to measure ﬁnancial cycles and show how unobserved components models can serve to evaluate uncertainty and to monitor cyclical developments in real time. Overall, our estimates indicate that in mid 2018 both real and ﬁnancial cycles in Luxembourg were close to zero, with ﬁnancial conditions near their long-run trend.
JEL Codes: C22, C32, E30, E50, G01.
Keywords: ﬁnancial cycles, unobserved component time series models, Luxembourg.
|Cahier d'étude 126 (pdf, 671 KByte)