Are Business and Credit Cycles Converging or Diverging? A Comparison of Poland, Hungary, the Czech Republic and the Euro Area

This paper provides an analysis of co-movements between real and financial variables in three new EU member countries (the Czech Republic, Hungary and Poland) and the euro area. It focuses on the co-movement between real credit granted to firms and real industrial output on the one hand, and between the aforementioned variables and a monetary policy indicator (the three-month real interest rate) on the other. Given that there is no single definition for the business cycle, we take three different approaches: we identify the turning points in the series and then estimate a concordance index; we decompose and compare the cyclical components of the series; and we calculate dynamic correlations across the variables. We find a better convergence of real than financial cycles between the new EU members and the euro area. There is no a high degree of dependence between loans and industrial output in all countries; yet, monetary policy appears to smooth the distribution of credit throughout the cycles