Credit and Business Cycle Co-movements in V4 countries: Evidence from Wavelet Analysis

The global shocks caused by economic crisis transmitted to liquidity and global capital flows. Reversely, the worldwide slowdown of credit flows affected investment activity and business cycle. Quantifying this transmission is one of the most important topics of the recent financial crisis, especially in the context of European recovery, because the banking system (credit supply) plays a crucial role for sustained recovery in the Europe after the financial crises. We focus on credit and business cycles co-movements in V4 countries. The relation between the time series represents transmission of credit shocks to aggregate economic activity movements. The most of the empirical analysis focus on time domain. Our contribution is in the application of analysis in time-frequency domain. The results provide distinguish cyclical movements in different frequency band to understand co-movements in short-term and long-run.