After the global financial crisis, the problem of examining the theoretical foundations and empirical features of financial cycles returned and became extremely popular. Broadly speaking, the financial cycle involves fluctuations over time in the level of financial risk perceived by entities operating on the financial market. Just as monetary policy is supposed to have a countercyclical impact on economic fluctuations, macroprudential policy tools should also be designed in such a way as to smooth the financial cycle.

The main empirical result obtained so far is that the financial cycle has a much longer period than the business cycle and can be measured in decades in developed economies. Additionally, the amplitude of this cycle, measured by the percentage deviation from the long-term trend, may be even two or three times greater than the amplitude of the real economy activity cycle. It is therefore necessary to develop methods for assessing the effectiveness of the macroprudential policy and the nature of its interaction with other types of economic policy, primarily monetary policy. This issue, quite new in the field of empirical economics, will be the subject of analysis in the project. Since the main goal of monetary policy is to influence the business cycle and of macroprudential policy to influence the business cycle, it is important to examine the interactions between the cycles. The proposed project will also be devoted to this issue.

The research will also cover the relationships between the real sector and the financial system, as well as the cycles observed in the currency market.

Team members: dr Jakub Głowacki (Assistant Professor), dr Błażej Mazur (Assistant Professor), mgr Anna Gomola (from 2022), mgr Piotr Adamczyk – PhD student (from 2022)