work builds on earlier contributions, including in Bank for International Settlements (1993), and Borio et al. (1994), and has since been deepened in a number of ways (see further Hofmann (2001) and Davis and Zhu (2004)). Similarly, Detken and Smets (2004) identify between 1970 and 2002 38 house price booms in 18 OECD countries on the basis of prices exceeding trend growth rates by at least 10% (see also Adalid and Detken (2007)). They emphasise the importance of joint fluctuations in house prices and credit over the boom-bust cycles in asset prices.

Others have focused on boom and bust episodes in house and equity prices. However, because they employed different methodologies and data sets, their findings have been difficult to compare. Bordo and Jeanne (2002) analysed episodes of booms and busts in house and equity prices for OECD countries and documented that more than one in every two house price booms ended up with a bust, against one for every six equity price booms. Using OECD data for 18 countries from 1970 to 2009, Burnside et al (2016) found that the amplitude of typical house price booms and busts was 54% and 29%, with a median length of four and five years, respectively. They also report that booms are not always followed by busts.

A number of other studies have borrowed methods widely employed in the business cycle literature to study financial cycles. Following Harding and Pagan (2002), rigorous approaches to documenting financial cycles have been used. For example, Pagan and Sossounov (2003) identify “bear” and “bull” phases in equity markets using formal methods of business cycle dating for US monthly data over the 1835–1997 period. They report that while the duration of bear markets is about 15 months, it is around 25 months for bull markets. Bear markets are characterised by about a 30% decline in equity prices and bull markets by about a 40% increase.

Ohn et al (2004) examine the “duration dependence” exhibited by bull and bear markets in the United States and report that both phases show positive dependence. Using the same methodology, Edwards et al (2003) find that the cyclical properties of equity prices in EMEs change following periods of financial liberalisation. Kaminsky and Schmukler (2008) report that equity price cycles in EMEs tend to become more volatile after liberalisation. Drehmann et al (2012) show that the length and amplitude of financial cycles have increased markedly since the mid-1980s and that cyclical peaks are very closely associated with financial crises.

Other research focuses on the cyclical properties of house prices. Although cyclicality is common, the duration and amplitude of housing cycles vary widely across geographical areas and time (Cunningham and Kolet (2011) and Hall et al (2006)). This, in turn, reflects variations in demand and supply conditions, the characteristics of housing finance and the sources of linkage between housing and real activity. Igan and Loungani (2012) study the characteristics of house price cycles in advanced economies and find that long-run price dynamics are mostly driven by local fundamental factors, such as demographics and construction costs, although movements in such fundamentals – and credit conditions – can create short-run deviations from equilibrium paths.

Some studies consider the linkages between business and asset price cycles (Breitung and Eickmeier (2014), Cicarelli et al (2016) and Prieto et al (2016)). A central finding of these studies is that house price cycles tend to have an especially close relationship with business cycles. Based on evidence for 27 countries, Cecchetti (2008) finds that housing booms worsen growth prospects while equity booms have little impact on the expected mean and variance of macroeconomic performance (although they do aggravate adverse outcomes). Cecchetti and Li (2008) study the impact of booms in equity and house prices on extreme fluctuations in output and the price level. They find that equity and housing booms are both associated with significantly worse growth and inflation prospects over a three-year horizon. Leamer (2007) finds that there are strong linkages between various aspects of housing market and 54