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Trading Business-Cycle Depth for Duration using an economy-specific characteristic

  • Ossama Mikhail

    ()

    (Dept. of Economics - College of Business Administration - University of Central Florida)

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    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. To account for the trade-off, a model is presented wherein an economy-specific parameter does control the magnitude, severity and persistence of the business cycle without the need to add an asymmetric functional form [that captures the propagation mechanism] to the model. The model results show that as much as half of a percentage point of GDP in depth and a relative difference of three years duration can be attributed to this parameter. The model implies a two-dimensional depth-duration space wherein we place the [average] depth-duration expansion and contraction for the U.S.

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    File URL: http://www.accessecon.com/pubs/EB/2006/Volume5/EB-06E30002A.pdf
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    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 5 (2006)
    Issue (Month): 7 ()
    Pages: 1-12

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    Handle: RePEc:ebl:ecbull:eb-06e30002
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    1. Margaret M. McConnell & Gabriel Perez Quiros, 1998. "Output fluctuations in the United States: what has changed since the early 1980s?," Staff Reports 41, Federal Reserve Bank of New York.
    2. Edwards, Sebastian & Biscarri, Javier Gomez & Perez de Gracia, Fernando, 2003. "Stock market cycles, financial liberalization and volatility," Journal of International Money and Finance, Elsevier, vol. 22(7), pages 925-955, December.
    3. D van Dijk & D R Osborn & M Sensier, 2002. "Changes in variability of the business cycle in the G7 countries," The School of Economics Discussion Paper Series 0204, Economics, The University of Manchester.
    4. Terence C. Mills & Ping Wang, 2002. "Plucking models of business cycle fluctuations: Evidence from the G-7 countries," Empirical Economics, Springer, vol. 27(2), pages 255-276.
    5. Olivier Blanchard & John Simon, 2001. "The Long and Large Decline in U.S. Output Volatility," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(1), pages 135-174.
    6. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
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