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Plucking models of business cycle fluctuations: Evidence from the G-7 countries

Author

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  • Terence C. Mills

    (Department of Economics, Loughborough University, Loughborough, Leicestershire, LE11 3TU, U.K.)

  • Ping Wang

    (Department of Economics, Loughborough University, Loughborough, Leicestershire, LE11 3TU, U.K.)

Abstract

Friedman's `plucking' model, in which output cannot exceed a ceiling level but is occasionally plucked downward by recessions, is tested using Kim and Nelson's formal econometric specification on output data from the G-7 countries. Considerable support for the model is obtained, leading us to conclude that during normal periods, output seems to be driven mostly by permanent shocks, but during recessions and high-growth recoveries, transitory shocks dominate. During these periods macroeconomic models that emphasise demand-oriented shocks, rather than real business cycle type models, may thus be more appropriate.

Suggested Citation

  • Terence C. Mills & Ping Wang, 2002. "Plucking models of business cycle fluctuations: Evidence from the G-7 countries," Empirical Economics, Springer, vol. 27(2), pages 255-276.
    • Handle: RePEc:spr:empeco:v:27:y:2002:i:2:p:255-276
    Note: Received: September 2000/Final Version Received: May 2001
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    Citations

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    Cited by:

    1. Robert Pater, 2014. "Are there two types of business cycles? a note on crisis detection," "e-Finanse", University of Information Technology and Management, Institute of Financial Research and Analysis, vol. 10(3), pages 1-28, December.
    2. Chang‐Jin Kim & James Morley & Jeremy Piger, 2005. "Nonlinearity and the permanent effects of recessions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(2), pages 291-309.
    3. Rodriguez Gabriel, 2007. "Application of Three Alternative Approaches to Identify Business Cycles in Peru," Working Papers 2007-007, Banco Central de Reserva del Perú.
    4. Ángel Guillén & Gabriel Rodríguez, 2014. "Trend-cycle decomposition for Peruvian GDP: application of an alternative method," Latin American Economic Review, Springer;Centro de Investigaciòn y Docencia Económica (CIDE), vol. 23(1), pages 1-44, December.
    5. Terence C. Mills & Ping Wang, 2003. "Have output growth rates stabilised? evidence from the g‐7 economies," Scottish Journal of Political Economy, Scottish Economic Society, vol. 50(3), pages 232-246, August.
    6. Tingguo Zheng & Yujuan Teng & Tao Song, 2010. "Business Cycle Asymmetry in China: Evidence from Friedman's Plucking Model," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 18(s1), pages 103-120.
    7. Ossama Mikhail, 2004. "No More Rocking Horses: Trading Business-Cycle Depth for Duration Using an Economy-Specific Characteristic," Macroeconomics 0402026, University Library of Munich, Germany.
    8. Ossama Mikhail, 2006. "Trading Business-Cycle Depth for Duration using an economy-specific characteristic," Economics Bulletin, AccessEcon, vol. 5(7), pages 1-12.

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