Grounding research in a common definition and concept of “procyclicality” – critical interlinkages between the banking industry and the economy that exacerbated economic conditions and threatened financial stability during the 2007-09 economic crisis – is the topic of a conference set for March 30-31 and sponsored, partly, by the Federal Reserve and the Office of the Comptroller of the Currency (OCC), the agencies said Monday.
The OCC, in conjunction with the conference, said it is seeking papers and participants for the conference, titled “Procyclicality Symposium: Measurement, Policy Implications, and Financial Stability.” The event is also co-sponsored by the Bank of England and the Deutsche Bundesbank. The co-sponsors said the event will promote discussion and dissemination of innovative theoretical and empirical research on the financial stability implications of procyclicality.
“The 2007–09 financial crisis revealed critical interlinkages between the financial sector, including the banking industry, and the real economy that exacerbated economic conditions and threatened financial stability,” the agencies said in a release. “Many academic researchers, policymakers, and industry practitioners analyze these connections under the broad guise of ‘procyclicality,’ making it difficult to compare and interpret findings and policy implications across studies.”
The agencies said that the inconsistency highlights how critical it is that research be grounded in a common definition and concept of procyclicality.
“In the economics literature, ‘procyclicality’ was originally used to describe an economic or financial variable’s co-movement with aggregate economic activity,” the agencies said. “For example, some have said that bank lending is procyclical because it moves in line with economic conditions.
“On the one hand, this co-movement often arises inevitably – for example, through demand-side effects – and may not necessarily reflect a structural failure or signal a cause for concern. On the other hand, if the co-movement arises through a causal link (between the economy and a bank behavior shift) that leads to a credit supply shortage, this reduction in lending may suggest a market disruption or a market failure that warrants policy intervention,” the agencies said.
Submission topics for the conference, which will be held at the Federal Reserve Board’s headquarters in Washington, include: definition and measurement of pro-cyclicality; behavioral concerns; economic considerations; and countercyclical policy framework.
The agencies said that submissions, to be considered, should be complete manuscripts (not abstracts) that are submitted electronically in PDF format by Dec. 1, 2022, to ProcyclicalitySymposium@frb.gov. Authors of accepted papers will be notified by Jan. 27, 2023, the agencies said.