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Measuring and Predicting Heterogeneous Recessions

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  • Cem Cakmakli

    (University of Amsterdam)

  • Richard Paap

    (Erasmus University Rotterdam)

  • Dick van Dijk

    (Erasmus University Rotterdam)

Abstract

This paper conducts an empirical analysis of the heterogeneity of recessions inmonthly U.S. coincident and leading indicator variables. Univariate Markovswitchingmodels indicate that it is appropriate to allow for two distinct recessionregimes, corresponding with ‘mild’ and ‘severe’ recessions. All downturnsstart with a mild decline in the level of economic activity. Contractions thatdevelop into severe recessions mostly correspond with periods of substantialcredit squeezes as suggested by the ‘financial accelerator’ theory. MultivariateMarkov-switching models that allow for phase shifts between the cyclicalregimes of industrial production and the Conference Board Leading EconomicIndex confirm these findings.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 11-154/4.

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Date of creation: 03 Nov 2011
Date of revision: 15 Nov 2011
Handle: RePEc:dgr:uvatin:20110154

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Web page: http://www.tinbergen.nl

Related research

Keywords: Business cycle; phase shifts; regime-switching models; Bayesian analysis;

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References

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Cited by:
  1. Candelon, Bertrand & Metiu, Norbert & Straetmans, Stefan, 2013. "Disentangling economic recessions and depressions," Discussion Papers 43/2013, Deutsche Bundesbank, Research Centre.

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