Financial Cycle With Text Information Embedding Based on LDA Measurement and Nowcasting

2.1 Financial Cycle Indicators

As a barometer of financial prosperity, financial cycle is an important indicator to accurately determine the cyclical fluctuation of the financial system, to in-depth explore the linkage between finance and macroeconomics, and to implement regulatory (Deng et al., 2022). However, differences exist in both indicators and methodologies. Early research focused on credit cycle by the amount of credit or its ratio to GDP (Schularick & Taylor, 2012; DeBonis & Silvestrini, 2014; Aikman et al., 2015). Although the single indicator is simple, it also overlooks the potential interacts between credit and other financial assets. Multi indicators as Monetary Condition Index (MCI) and Financial Conditions Index (FCI) incorporates interest rate, exchange rate, stock price, credit and real estate price that can reflect the future financial activities (Hansson et al.,1994; Goodhart & Hofmann, 2001; Lack, 2003; Hatzius et al., 2010; Drehmann et al., 2012). Indicators of balance sheet structure like non-core liabilities to broad money ratio (nc) and so on can also be used (Krupkina & Ponomarenko, 2015). Although research focus on the multi indicators, the overall logic is essentially consistent, that is, the financial cycle mainly reflects the “financing constraints of the financial market” and “risk and asset value”. However, research presents relatively insufficient availability and comparability.