Trading Business-Cycle Depth for Duration using an economy-specific characteristic
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.
Volume (Year): 5 (2006)
Issue (Month): 7 ()
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