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Business Cycles with Revolutions

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Author Info

  • Lance Kent

    ()
    (Department of Economics, College of William and Mary)

  • Toan Phan

    ()
    (Department of Economics, UNC-Chapel Hill)

Abstract

This 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 Info

Paper provided by Department of Economics, College of William and Mary in its series Working Papers with number 145.

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Length: 30 pages
Date of creation: 05 Nov 2013
Date of revision:
Handle: RePEc:cwm:wpaper:145

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Related research

Keywords: business cycles; political risk; time-varying uncertainty; panel VAR;

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  1. Acemoglu, Daron & Robinson, James A, 1998. "Why did the West Extend the Franchise? Democracy, Inequality and Growth in Historical Perspective," CEPR Discussion Papers 1797, C.E.P.R. Discussion Papers.
  2. Daron Acemoglu & James Robinson, 1999. "Democratization or Repression?," Working papers 99-27, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Valerie A. Ramey, 2009. "Identifying Government Spending Shocks: It's All in the Timing," NBER Working Papers 15464, National Bureau of Economic Research, Inc.
  4. Dominik Noe & Admasu Shiferaw, 2013. "Low-intensity Conflict and Firm Level Investment in Ethiopia," Working Papers 141, Department of Economics, College of William and Mary, revised 05 Dec 2013.
  5. Elias Papaioannou & Gregorios Siourounis, 2008. "Democratization and Growth," Working Papers 00027, University of Peloponnese, Department of Economics.
  6. Xavier Gabaix, 2008. "Variable Rare Disasters: An Exactly Solved Framework for Ten Puzzles in Macro-Finance," NBER Working Papers 13724, National Bureau of Economic Research, Inc.
  7. Barro, Robert, 2006. "Rare Disasters and Asset Markets in the Twentieth Century," Scholarly Articles 3208215, Harvard University Department of Economics.
  8. Nicholas Bloom, 2007. "The Impact of Uncertainty Shocks," NBER Working Papers 13385, National Bureau of Economic Research, Inc.
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