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The duration of economic expansions and recessions: More than duration dependence

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Author Info
Vítor Castro () (Universidade do Minho - NIPE)

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Abstract

One widespread idea in the business cycles literature is taht the older is an expansion or contraction, the more likely it is to end. This paper tries to provide further empirical support for this idea of positive duration dependence and, at the same time, control for the effects of other factors like leading indicators, the duration of the previous phase, investment, price of oil and external influences on the duration of expansions and contractions. This study employs a discrete-time duration model to analyse the impact of those variables on the likelihood of an expansion and contraction ending for a group of industrial countries over the last fifty years. The evidence provided in this paper suggests that the duration of expansions and contractions is not only dependent on their actual age: the duration of expansions is also positively dependent on the behaviour of the variables in the OECD composite leading indicator and on private investment, and negatively affected by the price of oil and by the occurence of a peak in the US business cycle; the duration of a contraction is negatively affected by its actual age and by the duration of the previous expansion.

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Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 18/2008.

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Date of creation: 2008
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Handle: RePEc:nip:nipewp:18/2008

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Postal: Núcleo de Investigação em Políticas Económicas, Escola de Economia e Gestão, Universidade do Minho, P-4710-057 Braga, Portugal
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Related research
Keywords: Business cycles; Expansions; Contractions; Duration dependence; Duration models;

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Find related papers by JEL classification:
C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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    Other versions:
  3. Jaimovich, Nir, 2007. "Firm dynamics and markup variations: Implications for sunspot equilibria and endogenous economic fluctuations," Journal of Economic Theory, Elsevier, vol. 137(1), pages 300-325, November. [Downloadable!] (restricted)
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  5. Fabio Moneta, 2005. "Does the Yield Spread Predict Recessions in the Euro Area?," International Finance, Blackwell Publishing, vol. 8(2), pages 263-301, 08. [Downloadable!] (restricted)
  6. Iiboshi, Hirokuni, 2007. "Duration dependence of the business cycle in Japan: A Bayesian analysis of extended Markov switching model," Japan and the World Economy, Elsevier, vol. 19(1), pages 86-111, January. [Downloadable!] (restricted)
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  8. Castro, Vítor, 2007. "The Impact Of The European Union Fiscal Rules On Economic Growth," The Warwick Economics Research Paper Series (TWERPS) 794, University of Warwick, Department of Economics. [Downloadable!]
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  9. Finn, Mary G, 2000. "Perfect Competition and the Effects of Energy Price Increases on Economic Activity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 400-416, August.
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  12. Marcelle Chauvet & Simon Potter, 2005. "Forecasting recessions using the yield curve," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 24(2), pages 77-103. [Downloadable!]
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  13. Lawrence J. Christiano & Martin Eichenbaum, 1990. "Current real business cycle theories and aggregate labor market fluctuations," Discussion Paper / Institute for Empirical Macroeconomics 24, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  14. Peter M. Summers, 2005. "What caused the Great Moderation? : some cross-country evidence," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 5-32. [Downloadable!]
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