E. Andreou et al., A comparison of the statistical properties of financial variables in the USA, UK and Germany over the business cycle, MANCH SCH, 68(4), 2000, pp. 396-418
This paper presents business cycle stylized facts for the US, UK and German
economies. We examine whether financial variables (interest rates, stock m
arket price indices, dividend yields and monetary aggregates) predict econo
mic activity over the business cycle, and we investigate the nature of any
non-linearities in these variables. Leading indicator properties are examin
ed using cross-correlations for both the values of the variables and their
volatilities. Our results imply that the most reliable leading indicator ac
ross the three countries is the interest rate term structure, although othe
r variables also appear to be useful for specific countries. The volatiliti
es of financial variables may also contain predictive information for produ
ction growth as well as production volatility. Non-linearities are uncovere
d for all financial series, especially in terms of autoregressive condition
al heteroscedasticity effects. Strong evidence of mean non-linearity is als
o found for many financial series and this can be associated with business
cycle asymmetries in the mean. This is the case for a number of American an
d British financial variables, especially interest rates, but the correspon
ding evidence for Germany is confined largely to the real long-term rate of
interest.