Business Cycles with Revolutions
AbstractThis paper develops an empirical macroeconomic framework to analyze the relationship between major political disruptions and business cycles of a country. We combine a new dataset of political revolutions (mass domestic political campaigns to remove dictators and juntas) across the world since 1960, with coup data and traditional macro data (of output, investment, trade, inflation and exchange rate). We then build a panel vector-autoregression model with two novel ingredients: (1) political disruptions and (2) an estimated probability of such disruptions. We find that both terms have statistically and economically significant impacts on business cycles. Interestingly, the impacts of the second term dominate those of the first, both statistically and economically. This suggests that our measure of political risk captures an important source of time-varying uncertainty and volatility in many countries.
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Bibliographic InfoPaper provided by Department of Economics, College of William and Mary in its series Working Papers with number 145.
Length: 30 pages
Date of creation: 05 Nov 2013
Date of revision:
business cycles; political risk; time-varying uncertainty; panel VAR;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-11-16 (All new papers)
- NEP-MAC-2013-11-16 (Macroeconomics)
- NEP-POL-2013-11-16 (Positive Political Economics)
- NEP-RMG-2013-11-16 (Risk Management)
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