The duration of economic expansions and recessions: more than duration dependence
Castro, Vítor Manuel Alves (2008) The duration of economic expansions and recessions: more than duration dependence. Working Paper. Coventry: University of Warwick, Department of Economics. (Warwick economic research papers.
WRAP_Castro)twerp_860.pdf - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader
Official URL: http://www2.warwick.ac.uk/fac/soc/economics/resear...
One widespread idea in the business cycles literature is that the older is an expansion or contraction, the more likely it is to end. This paper tries to provide further empirical support for this idea of positive duration dependence and, at the same time, control for the effects of other factors like leading indicators, the duration of the previous phase, investment, price of oil and external influences on the duration of expansions and contractions. This study employs for the first time a discrete-time duration model to analyse the impact of those variables on the likelihood of an expansion and contraction ending for a group of industrial countries over the last fifty years. The evidence provided in this paper suggests that the duration of expansions and contractions is not only dependent on their actual age: the duration of expansions is also positively dependent on the behaviour of the variables in the OECD composite leading indicator and on private investment, and negatively affected by the price of oil and by the occurrence of a peak in the US business cycle ; the duration of a contraction is negatively affected by its actual age and by the duration of the previous expansion.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HB Economic Theory|
|Divisions:||Faculty of Social Sciences > Economics|
|Library of Congress Subject Headings (LCSH):||Business cycles, Recessions, Econometric models, Failure time data analysis|
|Series Name:||Warwick economic research papers|
|Publisher:||University of Warwick, Department of Economics|
|Place of Publication:||Coventry|
|Number of Pages:||52|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
|Funder:||Fundação para a Ciência e a Tecnologia (FCT)|
|Grant number:||SFRH/BD/21500/2005 (FCT)|
|References:||Abderrezak, Ali (1998). On the duration of growth cycles: An international study. International Review of Economics and Finance, 7(3), 343-355. Alesina, A., N. Roubini, and G. Cohen (1997). Political Cycles and the Macroeconomy. The MIT Press. Cambridge, MA. Allison, Paul (1982). Discrete-time methods for the analysis of event histories. Sociological Methodology, 13, 61-98. Armingeon, K., P. Leimgruber, M. Beyeler and S. Menegale (2005). Comparative Political Data Set 1960-2004. Institute of Political Science, University of Berne. Barsky, Robert and Lutz Kilian (2004). Oil and the Macroeconomy since the 1970s. Journal of Economic Perspectives, 18(4), 115-134. Bassanini, Andrea and Stefano Scarpetta (2001). The driving forces of economic growth: panel data evidence for the OECD countries. OECD Economic Studies, 33(II), 9-56. Baxter, Marianne and Robert King (1993). Fiscal policy in general equilibrium. American Economic Review, 83, 315-334. Bry, G. and C. Boschan (1971). Cyclical Analysis of Time Series: Selected Procedures and Computer Program. New York: NBER. Burns, A. F. and W. C. Mitchell (1946). Measuring Business Cycles. NBER studies in Business Cycles, No. 2. New York: National Bureau of Economic Research. Buti, M., D. Franco and H. Ongena, 1997. Budgetary policies during recessions: Retrospective application of the Stability and Growth Pact to the post-war periods. Mimeo. Castro, Vítor (2007). The impact of the European Union fiscal rules on economic growth. The Warwick Economics Research Paper Series (TWERPS), WP 794. Chauvet, Marcelle and Simon Potter (2005). Forecasting recessions using the yield curve. Journal of Forecasting, 24, 77-103. Chen, N., L. Graham and A. Oswald (2007). Oil prices, profits, and recessions: An inquire using terrorisms as an instrumental variable. The Warwick Economics Research Paper Series (TWERPS), WP 809. Christiano, Laurence and Martin Eichenbaum (1992). Current real business cycles theories and aggregate labor market fluctuations. American Economic Revew, 82, 430-450. Di Venuto, Nicholas and Allan Layton (2005). Do the phases of the business cycle die of old age? Australian Economic Papers, 44(3), 290-305. Diebold, Francis and Glenn Rudebusch (1990). A nonparametric investigation of duration dependence in the American business cycle. Journal of Political Economy, 98(3), 596-616. Diebold, F., G. Rudebusch and D. Sichel (1990). International evidence on business cycle duration dependence. Institute for Empirical Macroeconomics, DP 31. Diebold, F., G. Rudebusch and D. Sichel (1993). Further evidence on business cycle duration dependence. In: J. H. Stock and M. W. Watson (Eds), Business Cycles, Indicators, and Forecasting, 87-116. Chicago: University of Chicago Press. Dueker, Michael (1997). Strengthening the case for the yield curve as a predictor of U.S. recessions. Federal Reserve Bank of St. Louis Review, March/April, 41-51. Durland, Michael and Thomas McCurdy (1994). Duration-dependent transitions in a Markov model of US GNP growth. Journal of Business and Economic Statistics, 12(3), 279-288. Estrella, Arturo and Frederic Mishkin (1998). Predicting U.S. recessions: Financial variables as leading indicators. Review of Economics and Statistics, 80(1), 45-61. Filardo, Andrew (1994). Business cycle phases and their transitional dynamics. Journal of Business and Economic Statistics, 12(3), 299-308. Filardo, Andrew and Stephan Gordon (1998). Business cycle durations. Journal of Econometrics, 85, 99-123. Finn, Mary (2000). Perfect Competition and the effects of energy price increases on economic activity. Journal of Money, Credit and Banking, 32, 400-416. Fisher, Irving (1925). Our unstable dollar and the so-called business cycle. Journal of American Statistical Association, 20, 179-202. Hamilton, James (1983). Oil and the Macroeconomy since World War II. Journal of Political Economy, 91(2), 228-248. Hamilton, James (1989). A new approach to the economic analysis of nonstationary time series and the business cycle. Econometrica, 57(2), 357-384. Hamilton, James (2005). Oil and the Macroeconomy. In: S. Durland and L. Blume Eds. The New Palgrave Dictionary of Economics. Second Edition. Palgrave MacMillan. Iiboshi, Hirokuni (2007). Duration dependence of the business cycle in Japan: A Bayesian analysis of extended Markov switching model. Japan and the World Economy, 19, 86-111. Jaimovich, Nir (2007). Firm dynamics and markup variations: Implications for sunspot equilibria and endogenous economic fluctuations. Journal of Economic Theory, 137, 300-325. Jenkins, Stephen (1995). Easy estimation methods for discrete-time duration models. Oxford Bulletin of Economics and Statistics, 57(1), 129-138. Kiefer, Nicholas (1988). Economic duration data and hazard functions. Journal of Economic Literature, 26(2), 646-679. Kim, Chang-Jin and Charles Nelson (1998). Business cycle turning points, a new coincident index, and tests of duration dependence based on a dynamic factor model with regime switching. Review of Economics and Statistics, 80(2), 188-201. King, Robert and Sergio Rebelo (1999). Resuscitating Real Business Cycles. In Handbook of Macroeconomics. J. B. Taylor & M. Woodford (ed.), Ed. 1, Vol. 1, Ch. 14, 927-1007. Amsterdam: Elsevier. Klein, Michael (1996). Timing is all: Elections and the duration of United States business cycles. Journal of Money, Credit and Banking, 28(1), 84-101. Kneller, R., M. Bleaney and N. Gemmell (1999). Fiscal policy and growth: evidence from OECD countries. Journal of Public Economics, 74, 171-190. Layton, Allan and Daniel Smith (2007). Business cycle dynamics with duration dependence and leading indicators. Journal of Macroeconomics, 29(4), 855-875. Lam, Pok-Sang (2004). A Markov-switching model of GNP growth with duration dependence. International Economic Review, 45(1), 175-204. Metz, Robert (2005). Does the Stability and Growth Pact lengthen recessions in the European Union countries? Mimeo. Washington University. Mills, Terence (2001). Business cycle asymmetry and duration dependence: An international perspective. Journal of Applied Statistics, 28(6), 713-724. Moneta, Fabio (2005). Does the yield spread predict recessions in the Euro Area. International Finance, 8(2), 263-301. Mudambi, Ram and Larry Taylor (1995). Some non-parametric tests for duration dependence: An application to UK business cycle data. Journal of Applied Statistics, 22(1), 163-177. OECD (2007). OECD Economic Outlook. Statistical Compendium, May 2007. OECD (2007). OECD Main Economic Indicators. International Statistical Yearbook, May 2007. Ohn, J., L. Taylor and A. Pagan (2004). Testing for duration dependence in economic cycles. Econometrics Journal, 7, 528-549. Prentice, R. L. and L. A. Gloeckler (1978). Regression analysis of grouped survival data with application to the breast cancer data. Biometrics, 34(1), 57-67. Rebelo, Sergio (2005). Real Business Cycle Models: Past, Present and Future. Scandinavian Journal of Economics, 107, 207-238. Rotemberg, Julio and Michael Woodford (1996). Imperfect competition and the effect of energy price increases on economic activity. Journal of Money, Credit and banking, 28, 549-577. Sensier, M., M.Artis, D. Osborn and C. Birchenhall (2004). Domestic and international influences on business cycle regimes in Europe. International Journal of Forecasting, 20, 343-357. Sichel, Daniel (1991). Business cycle duration dependence: A parametric approach. Review of Economics and Statistics, 73(2), 254-260. Sorensen, P. and H. Whitta-Jacobson (2005). Introducing Advanced Macroeconomics: Growth and Business Cycles. McGraw-Hill, New York. Summers, Peter (2005). What caused the Great Moderation? Some cross-country evidence. Federal Reserve Bank of Kansas City Economic Review, 3rd Quarter, 5-32. Wooldridge, Jeffrey (2002). Econometric Analysis of Cross Section and Panel Data. The MIT Press, Massachusetts. Zellner, A. (1990). Some properties of the durations of economic expansions and contractions. American Economist, 34, 20-27. Zuehlke, Thomas (2003). Business cycle duration dependence reconsidered. Journal of Business and Economic Statistics, 21(4), 564-569.|
Actions (login required)