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Business cycle duration dependence and foreign recessions

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  • de Bondt, Gabe
  • Vermeulen, Philip

Abstract

We estimate business cycle regime switching logit models for G7 countries to determine the effect of duration of the current business cycle phase and of foreign recessions on the likelihood that expansions and recessions come to an end. With respect to expansions in a G7 country, we find that the probability they end roughly doubles each time another G7 country falls into a recession. We also find that expansions in the US and Germany are duration dependent, i.e. are more likely to end as they grow older. This contrasts with other G7 countries where expansions are not duration dependent. With respect to recessions in a G7 country, we find that the likelihood of them coming to an end is not affected by other G7 countries’ recessions. We find duration dependence of recessions for all G7 countries, i.e. recessions that have gone on for a while are more likely to end. JEL Classification: E32, C41

Suggested Citation

  • de Bondt, Gabe & Vermeulen, Philip, 2018. "Business cycle duration dependence and foreign recessions," Working Paper Series 2205, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20182205
    Note: 337418
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    References listed on IDEAS

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    3. Alex Botsis & Kevin Lee, 2022. "Nowcasting Using Firm-Level Survey Data; Tracking UK Output Fluctuations and Recessionary Events," Economic Statistics Centre of Excellence (ESCoE) Technical Reports ESCOE-TR-20, Economic Statistics Centre of Excellence (ESCoE).

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    More about this item

    Keywords

    business cycles; duration dependence; recessions; regime switching logit model;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies

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