The European Way Out of Recessions
AbstractThis paper proposes a two-regime Bounce-Back Function augmented Self-Exciting Threshold AutoRegression (SETAR) which allows for various shapes of recoveries from the recession regime. It relies on the bounce-back effects first analyzed in a Markov-Switching setup by Kim, Morley and Piger  and recently extended by Bec, Bouabdallah and Ferrara [2011a]. This approach is then applied to post-1973 quarterly growth rates of French, German, Italian, Spanish and Euro area real GDPs. Both the linear autoregression and the standard SETAR without bounce-back effect null hypotheses are strongly rejected against the Bounce-Back augmented SETAR alternative in all cases but Italy. The relevance of our proposed model is further assessed by the comparison of its short-term forecasting performances with the ones obtained from a linear autoregression and a standard SETAR. It turns out that the bounce-back models one-step ahead forecasts generally outperform the other ones, and particularly so during the last recovery period in 2009Q3-2010Q4.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 2011-23.
Date of creation: 2011
Date of revision:
Contact details of provider:
Postal: 33, boulevard du port - 95011 Cergy-Pontoise Cedex
Phone: 33 1 34 25 60 63
Fax: 33 1 34 25 62 33
Web page: http://thema.u-cergy.fr
More information through EDIRC
Threshold autoregression; bounce-back effects; asymmetric business cycles. JEL classification: E32; C22.;
Other versions of this item:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bec, F. & Bouabdallah, O. & Ferrara, L., 2011.
"The possible shapes of recoveries in Markov-switching models,"
321, Banque de France.
- Bec Frederique & Othman Bouabdallah & Laurent Ferrara, 2011. "The possible shapes of recoveries in Markov-Switching models," THEMA Working Papers 2011-02, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
- Frédérique BEC & Othman BOUABDALLAH & Laurent FERRARA, 2011. "The Possible Shapes of Recoveries in Markov-Switching Models," Working Papers 2011-02, Centre de Recherche en Economie et Statistique.
- 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.
- Kapetanios, G., 1999. "Threshold Models for Trended Time Series," Cambridge Working Papers in Economics 9905, Faculty of Economics, University of Cambridge.
- Pesaran, H.M. & Potter, S.M., 1995.
"A Floor and Ceiling Model of U.S. Output,"
Cambridge Working Papers in Economics
9407, Faculty of Economics, University of Cambridge.
- James Morley & Jeremy Piger, 2012. "The Asymmetric Business Cycle," The Review of Economics and Statistics, MIT Press, vol. 94(1), pages 208-221, February.
- Beaudry, Paul & Koop, Gary, 1993. "Do recessions permanently change output?," Journal of Monetary Economics, Elsevier, vol. 31(2), pages 149-163, April.
- Li, Jing, 2011. "Bootstrap prediction intervals for SETAR models," International Journal of Forecasting, Elsevier, vol. 27(2), pages 320-332, April.
- Terasvirta, T & Anderson, H M, 1992. "Characterizing Nonlinearities in Business Cycles Using Smooth Transition Autoregressive Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages S119-36, Suppl. De.
- Li, Jing, 2011. "Bootstrap prediction intervals for SETAR models," International Journal of Forecasting, Elsevier, vol. 27(2), pages 320-332.
- Jeremy Piger & James Morley & Chang-Jin Kim, 2005.
"Nonlinearity and the permanent effects of recessions,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 20(2), pages 291-309.
- Chang-Jin Kim & James Morley & Jeremy Piger, 2003. "Nonlinearity and the permanent effects of recessions," Working Papers 2002-014, Federal Reserve Bank of St. Louis.
- Clements, M.P. & Franses, Ph.H.B.F. & Smith, J., 1999.
"On SETAR non- linearity and forecasting,"
Econometric Institute Report
EI 9914-/A, Erasmus University Rotterdam, Econometric Institute.
- Hansen, Bruce E. & Seo, Byeongseon, 2002.
"Testing for two-regime threshold cointegration in vector error-correction models,"
Journal of Econometrics,
Elsevier, vol. 110(2), pages 293-318, October.
- Tom Doan, . "RATS programs to replicate Hansen/Seo paper on threshold cointegration," Statistical Software Components RTZ00092, Boston College Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marion Oury).
If references are entirely missing, you can add them using this form.