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Classical and Modern Business Cycle Measurement: The European Case

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  • Hans-Martin Krolzig
  • Juan Toro
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    Abstract

    This paper intends to harmonize two different approaches to the analysis of the business cycle and in doing so it retrieves the stylized facts of the business cycle in Europe. We start with the `classical` approach proposed in Burns and Mitchell (1946) of dating and analyzing the business cycle; we then adopt the `modern` alternative: the Markov-switching time series model proposed in Hamilton (1989a). The model`s regime probabilities provide an optimal statistical inference of the turning point of the European business cycle. For assessing the capacity of the parametric approach to generate the stylized facts of the classical cycle in Europe, the stylized facts of the original data are compared to those of simulated data. The MS VAR model is shown to be a good candidate for use as a statistical instrument to improve the understanding of the business cycle.

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    Bibliographic Info

    Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 60.

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    Date of creation: 01 Jan 2001
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    Handle: RePEc:oxf:wpaper:60

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    Related research

    Keywords: international business cycles; European Union; Markov switching; structural breaks; time series analysis;

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    References

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    1. Adrian Pagan, 1997. "Towards an Understanding of Some Business Cycle Characteristics," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 30(1), pages 1-15.
    2. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbance," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 497, Massachusetts Institute of Technology (MIT), Department of Economics.
    3. Gerhard Bry & Charlotte Boschan, 1971. "Foreword to "Cyclical Analysis of Time Series: Selected Procedures and Computer Programs"," NBER Chapters, in: Cyclical Analysis of Time Series: Selected Procedures and Computer Programs, pages -1 National Bureau of Economic Research, Inc.
    4. Gerhard Bry & Charlotte Boschan, 1971. "Cyclical Analysis of Time Series: Selected Procedures and Computer Programs," NBER Books, National Bureau of Economic Research, Inc, number bry_71-1.
    5. Bruce E. Hansen, 1995. "Erratum: The Likelihood ratio Test Under Nonstandard Conditions: Testing the Markov Switching Model of GNP," Boston College Working Papers in Economics, Boston College Department of Economics 296., Boston College Department of Economics.
    6. Hansen, Bruce E, 1992. "The Likelihood Ratio Test under Nonstandard Conditions: Testing the Markov Switching Model of GNP," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 7(S), pages S61-82, Suppl. De.
    7. Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1.
    8. Sichel, Daniel E, 1993. "Business Cycle Asymmetry: A Deeper Look," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 31(2), pages 224-36, April.
    9. Pagan, Adrian, 1997. "Policy, Theory, and the Cycle," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 13(3), pages 19-33, Autumn.
    10. Phillips, Kerk L., 1991. "A two-country model of stochastic output with changes in regime," Journal of International Economics, Elsevier, Elsevier, vol. 31(1-2), pages 121-142, August.
    11. Artis, Michael J & Zhang, W, 1997. "International Business Cycles and the ERM: Is There a European Business Cycle?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 2(1), pages 1-16, January.
    12. Wesley Clair Mitchell, 1951. "What Happens During Business Cycles: A Progress Report," NBER Books, National Bureau of Economic Research, Inc, number mitc51-1.
    13. Hamilton, James D., 1990. "Analysis of time series subject to changes in regime," Journal of Econometrics, Elsevier, Elsevier, vol. 45(1-2), pages 39-70.
    14. Hess, Gregory D & Iwata, Shigeru, 1997. "Measuring and Comparing Business-Cycle Features," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 15(4), pages 432-44, October.
    15. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, Econometric Society, vol. 57(2), pages 357-84, March.
    16. Don Harding & Adrian Pagan, 1999. "Dissecting the Cycle," Melbourne Institute Working Paper Series, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne wp1999n13, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
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    Cited by:
    1. Emanuel Mönch & Harald Uhlig, 2003. "Towards a Monthly Business Cycle Chronology for the Euro Area," SFB 649 Discussion Papers SFB649DP2005-023, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany, revised Apr 2005.
    2. M Artis, 2002. "Dating the Business Cycle in Britain," Centre for Growth and Business Cycle Research Discussion Paper Series, Economics, The Univeristy of Manchester 17, Economics, The Univeristy of Manchester.
    3. Laurent Ferrara & Olivier Darné & Marie Adanero-Donderis, 2009. "Un indicateur probabiliste du cycle d’accélération pour l’économie française," Économie et Prévision, Programme National Persée, Programme National Persée, vol. 189(3), pages 95-114.

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