Analysis of Financial Development Shocks at Different Time Scales with Wavelet Transform (Wavelet): The Case of MERCOSUR Countries

Abstract

The primary purpose of this study is to analyse financial development shocks in the MERCOSUR country group with annual data for the period 1980-2020. In the analysis, the financial development index (FD), the financial institutions index (FI) constituting it and financial markets indices (FM) are used to represent financial development. The wavelet transforms method tests whether the shocks are permanent in the short, medium and long term. In this respect, the study makes an important contribution to the literature. In conclusion, it is determined that the shocks encountered by all the variables examined in the medium term are temporary.