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

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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.)

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    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.

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    Bibliographic Info

    Article provided by Springer in its journal Empirical Economics.

    Volume (Year): 27 (2002)
    Issue (Month): 2 ()
    Pages: 255-276

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    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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    Related research

    Keywords: Business cycle asymmetry; state space models; G-7 countries; Markov switching.;

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    Cited by:
    1. Jeremy Piger & James Morley & Chang-Jin Kim, 2005. "Nonlinearity and the permanent effects of recessions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 20(2), pages 291-309.
    2. Ossama Mikhail, 2004. "No More Rocking Horses: Trading Business-Cycle Depth for Duration Using an Economy-Specific Characteristic," Macroeconomics, EconWPA 0402026, EconWPA.
    3. Ossama Mikhail, 2006. "Trading Business-Cycle Depth for Duration using an economy-specific characteristic," Economics Bulletin, AccessEcon, vol. 5(7), pages 1-12.
    4. Rodriguez Gabriel, 2007. "Application of Three Alternative Approaches to Identify Business Cycles in Peru," Working Papers, Banco Central de Reserva del Perú 2007-007, Banco Central de Reserva del Perú.

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