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Do economies stall? The international evidence

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  • Wai-Yip Alex Ho
  • James Yetman

Abstract

A "stalling" economy has been defined as one that experiences a discrete deterioration in economic performance following a decline in its growth rate to below some threshold level. Previous efforts to identify stalls have focused primarily on the US economy, with the threshold level being chosen endogenously, and have suggested that the concept of a stall may be useful for macroeconomic forecasting. We examine the international evidence for stalling in a panel of 51 economies using two different definitions of a stall threshold (time-invariant and related to lagged average growth rates) and two complementary empirical approaches (insample statistical significance and out-of-sample forecast performance). We find that the evidence for stalling based on time-invariant thresholds is limited: only 12 of the 51 economies in our sample experience statistically significant stalls, and including a stall threshold generally results in only modest improvements to out-ofsample forecast performance. When we instead model the stall threshold as varying with average growth rates, the number of economies with statistically-significant stalls actually declines (to nine), but in 71% of the cases we examine, including a stall threshold results in an improvement in out-of-sample forecast performance.

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Bibliographic Info

Paper provided by Bank for International Settlements in its series BIS Working Papers with number 407.

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Length: 27 pages
Date of creation: Mar 2013
Date of revision:
Handle: RePEc:bis:biswps:407

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Keywords: business cycles; stall speed; Markov switching;

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  1. Hansen, B.E., 1991. "Inference when a Nuisance Parameter is Not Identified Under the Null Hypothesis," RCER Working Papers 296, University of Rochester - Center for Economic Research (RCER).
  2. Clark, Todd E. & West, Kenneth D., 2007. "Approximately normal tests for equal predictive accuracy in nested models," Journal of Econometrics, Elsevier, Elsevier, vol. 138(1), pages 291-311, May.
  3. Bruce E. Hansen, 1996. "Sample Splitting and Threshold Estimation," Boston College Working Papers in Economics, Boston College Department of Economics 319., Boston College Department of Economics, revised 12 May 1998.
  4. JAMES G. MacKINNON, 2006. "Bootstrap Methods in Econometrics," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 82(s1), pages S2-S18, 09.
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