Financial Cycles and Business Cycles in Latin America Countries

Abstract

The objective of this paper is to study the relationship between the financial cycle, represented by the credit- GDP (gross domestic product) gap, and the GDP cycle for five Latin American economies: Argentina, Brazil, Chile, Colombia and Mexico. The interest is to analyze the feasibility that the financial cycle can serve as a good early warning indicator (EWI). For this purpose, the corresponding cyclic components are extracted under two alternative procedures: the Hodrick-Prescott filter and the Hamilton filter. After cyclical dating, the results show a better performance of the first of the filters, and the analysis suggests that the financial cycle does not lead to the product cycle in the countries analyzed.