(2023)). A separate literature uses different methods to identify cycles in real and financial variables to help understand the current economic situation, how the macroeconomy is likely to evolve, and how policy can best respond. These studies focus on various types of cycles and their turning points, including business cycles (Burns and Mitchell 1946; Harding and Pagan 2002), business and credit cycles (Claessens, Kose, and Terrones 2009, 2011), capital flow cycles or “waves” (Forbes and Warnock 2012, 2021), and the global financial cycle (Rey 2015).<sup>2</sup> Surprisingly, this classical approach for identifying turning points has not been systematically applied to interest rate cycles.<sup>3</sup> This paper attempts to fill this gap. We identify the monthly turning points of cycles in policy interest rates (supplemented with information on central banks’ asset purchases and sales) for 24 advanced economies over 1970-2024. To simplify terminology, we will refer to the resulting cycles as “rate cycles”. Our approach is novel not only in the application of business cycle methodology to identify and analyze turning points in rate cycles, but also in its combination with time-series techniques employing a factor-augmented vector autoregressive (FAVAR) model to analyze a rich set of global and domestic shocks behind these cycles.

Although rate cycles often mirror business and financial cycles, even within a given cyclical phase (such as a recession or a financial downturn), there are different ways that central banks can adjust monetary policy—with different effects on activity and inflation. We focus mainly on changes in policy interest rates, as this is the primary tool employed by central banks to shape the monetary policy stance, although we supplement this with information on asset purchase programs. Policy interest rates are straightforward to observe, with data widely available across countries over long periods. This makes it possible to find comparable historical precedents and perform the empirical analysis decomposing the shocks driving these cycles.

Section II identifies the turning points of the rate cycles that inform the analysis in the remainder of the paper. Each rate cycle consists of an easing and tightening phase, comparable to the expansion and contraction phases that together constitute a business cycle. Using monthly data on nominal policy rates and new asset purchase programs, we modify the dating algorithm from Bry and Boschan (1971) and Harding and Pagan (2002) to identify 212 distinct rate phases (111 of tightening and 101 of easing) from January 1970 through May 2024. There are substantially less frequent turning points after 2010, with many economies in extended easing phases until after the pandemic, highlighting the importance of using a longer time series to understand today’s tightening phase. This rich database of the turning points in rate cycles should provide a useful reference for future work on a wide range of topics related to monetary policy.

Section III describes the key characteristics of the resulting rate cycles, including their relationships with macroeconomic variables and how these characteristics and relationships have

> 2 Related research examines the interactions between different types of cycles, particularly business, credit, and financial cycles, e.g., Stock and Watson (1999), Bernanke and Gertler (1989), Kiyotaki and Moore (1997), Claessens, Kose, and Terrones (2012), and Jordà, Schularick, and Taylor (2017).

> 3 Other research uses different approaches to identify easing and tightening phases. For example, de Soyres and Saijid (2024) defines an easing phase as when the policy rate decreases compared to the previous quarter and had not decreased already in the year prior. Caldara et.al. (2024) focuses on “global tightening windows” which last two years and begin when: (i) global interest rates are higher by more than 25 basis points than four quarters before; (ii) global interest rates are higher than six quarters later. Adrian and Estrella (2008) defines monetary policy cycles in the United States using fixed thresholds over fairly short windows to locate peaks in the federal funds rate. Some financial institutions use historical narratives or thresholds to identify turning points of easing and tightening phases. None of these studies, however, apply a systematic framework to identify and analyze easing and tightening phases for interest rates across a large set of countries over a long period.

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