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On the Periodic Structure of the Business Cycle

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Abstract

In this paper, we test whether a regime shift from expansion to recession and vice versa is, ceteris paribus, equally likely throughout the year. If not, then it may, for instance, be less likely to get out of a recession in the middle of the winter than it is, say, in the spring or summer. We make use of Markov switching regime models to test the hypothesis of interest. The evidence is based on the conventional NBER business cycle chronology as well as alternatives to it. We find that recessions exhibit a periodic pattern in their switching regime transition probability structure. It is particularly the months associated with Christmas and spring that appear to have higher switching probabilities from recession to expansion. Our results also imply that a recession and an expansion are, on average, longer or shorter depending on what time of the year they start. Such results suggest the presence of seasonal patterns in business cycle durations. One should note though that such a notion of seasonality is quite different from the common one based on unobserved component linear time series models. Our paper investigates issues which go beyond linear dependence between seasonality and business cycles.

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File URL: http://cowles.econ.yale.edu/P/cd/d10a/d1028.pdf
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Bibliographic Info

Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1028.

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Length: 25 pages
Date of creation: Jul 1992
Date of revision:
Handle: RePEc:cwl:cwldpp:1028

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Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA
Phone: (203) 432-3702
Fax: (203) 432-6167
Web page: http://cowles.econ.yale.edu/
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

Related research

Keywords: Seasonality; business cycles; Markov switching regime models; periodic structures; nonlinear time series;

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References

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  1. Ghysels, E., 1991. "Are Business Cycle Turning Points Uniformly Distributed Throughout the Year?," Cahiers de recherche 9135, Centre interuniversitaire de recherche en ├ęconomie quantitative, CIREQ.
  2. Savin, N Eugene, 1977. "A Test of the Monte Carlo Hypothesis: Comment," Economic Inquiry, Western Economic Association International, vol. 15(4), pages 613-17, October.
  3. Osborn, Denise R, 1988. "Seasonality and Habit Persistence in a Life Cycle Model of Consumptio n," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 3(4), pages 255-66, October-D.
  4. Francis X. Diebold & Glenn D. Rudebusch, 1987. "Scoring the leading indicators," Special Studies Papers 206, Board of Governors of the Federal Reserve System (U.S.).
  5. Stock, J.H. & Watson, M.W., 1989. "New Indexes Of Coincident And Leading Economic Indicators," Papers 178d, Harvard - J.F. Kennedy School of Government.
  6. Francis X. Diebold & Glenn D. Rudebusch, 1991. "Have postwar economic fluctuations been stabilized?," Working Paper Series / Economic Activity Section 116, Board of Governors of the Federal Reserve System (U.S.).
  7. Osborn, Denise R & Smith, Jeremy P, 1989. "The Performance of Periodic Autoregressive Models in Forecasting Seasonal U. K. Consumption," Journal of Business & Economic Statistics, American Statistical Association, vol. 7(1), pages 117-27, January.
  8. Lars Peter Hansen & Thomas J. Sargent, 1993. "Recursive linear models of dynamic economies," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  9. Bell, William R & Hillmer, Steven C, 1984. "Issues Involved with the Seasonal Adjustment of Economic Time Series," Journal of Business & Economic Statistics, American Statistical Association, vol. 2(4), pages 291-320, October.
  10. Mark W. Watson, 1992. "Business Cycle Durations and Postwar Stabilization of the U.S. Economy," NBER Working Papers 4005, National Bureau of Economic Research, Inc.
  11. Ghysels, Eric & Hall, Alastair, 1990. "Are consumption-based intertemporal capital asset pricing models structural?," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 121-139.
  12. McCulloch, J Hutson, 1975. "The Monte Carlo Cycle in Business Activity," Economic Inquiry, Western Economic Association International, vol. 13(3), pages 303-21, September.
  13. Wecker, William E, 1979. "Predicting the Turning Points of a Time Series," The Journal of Business, University of Chicago Press, vol. 52(1), pages 35-50, January.
  14. Thomas J. Sargent & Christopher A. Sims, 1977. "Business cycle modeling without pretending to have too much a priori economic theory," Working Papers 55, Federal Reserve Bank of Minneapolis.
  15. Ghysels, E., 1992. "Charistmas, Spring and the Dawning of Economic Recovery," Cahiers de recherche 9215, Universite de Montreal, Departement de sciences economiques.
  16. Neftci, Salih N, 1984. "Are Economic Time Series Asymmetric over the Business Cycle?," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 307-28, April.
  17. Victor Zarnowitz, 1963. "Cloos on Reference Dates and Leading Indicators: A Comment," The Journal of Business, University of Chicago Press, vol. 36, pages 461.
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