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No More Rocking Horses: Trading Business-Cycle Depth for Duration Using an Economy-Specific Characteristic

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  • Ossama Mikhail

Abstract

Regarding the trade-off between the depth and the duration of recessions, there exists a mounting empirical evidence of the idiosyncratic and non-synchronized behavior of the business cycle over time within and across countries. In this paper, I propose a stochastic dynamic general equilibrium formulation wherein an economy-specific characteristic - labeled as the missing parameter - (e.g., the financial institutional framework and regulations) does control the magnitude, severity and persistence of the business cycle. The results of the simulations show that as much as 0.5 of a percentage point of GDP in depth and a relative difference of 3 years duration can be attributed to this parameter. Overlooked for decades, this missing parameter hypothesizes that Frisch's 'rocking-horse theory' of the business cycle is an inaccurate description of the business-cycle behavior.

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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0402026.

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Length: 18 pages
Date of creation: 23 Feb 2004
Date of revision:
Handle: RePEc:wpa:wuwpma:0402026

Note: Type of Document - pdf; prepared on Win98; pages: 18; figures: 1
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Web page: http://128.118.178.162

Related research

Keywords: Business Cycle; Depth; Duration; Frisch's Rocking-Horse Theory; Economic Institutions; Real Business Cycles.;

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References

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Cited by:
  1. Chirwa, Themba G., 2009. "The role of real and nominal variables in defining business cycles: dynamic properties of a hybrid model - an alternative view," MPRA Paper 18949, University Library of Munich, Germany.

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