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Measuring the Financial Cycle in South Africa

We measure the financial cycle in South Africa using three different methodologies, consider its main characteristics and examine its relationships with the business cycle and a measure of financial stress. We identify the financial cycle using credit, house prices and equity prices as indicators, and estimate it using traditional turningpoin analysis, frequency-based filters and an unobserved components model-based approach. We find evidence of a financial cycle in South Africa that has a longer duration and a larger amplitude than the traditional business cycle, and that periods where financial conditions are stressed are associated with peaks in the financial cycle. Developments in measures of credit and house prices are important indicators of the financial cycle, although the case for including equity prices in the measures is less certain.

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