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

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Author Info
Castro, Vítor (University of Warwick, University of Coimbra and NIPE)

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Abstract

One widespread idea in the business cycles literature is that 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 for the first time 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 occurrence 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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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/publications/twerp_860.pdf
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Publisher Info
Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 860.

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Length: 52 pages
Date of creation: 2008
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Handle: RePEc:wrk:warwec:860

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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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References listed on IDEAS
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  3. Vítor Castro, 2007. "The Impact of the European Union Fiscal Rules on Economic Growth," NIPE Working Papers 10/2007, NIPE - Universidade do Minho. [Downloadable!]
    Other versions:
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  6. Jonathan Ohn & Larry W. Taylor & Adrian Pagan, 2004. "Testing for duration dependence in economic cycles," Econometrics Journal, Royal Economic Society, vol. 7(2), pages 528-549, December. [Downloadable!] (restricted)
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  8. 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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  10. 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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  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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