Financial cycles lead downturns, says Bank of Finland paper


A Bank of Finland paper published on January 4 says financial frictions and constraints tend to bite more during economic downturns than expansions.

Markus Haavio, the paper's author, uses turning point analysis to establish some stylised facts about financial cycles and business cycles and whether developments in financial markets lead developments in the real economy. He says the ongoing crisis has highlighted the need to understand the linkages between financial markets and the real economy.

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