Have business cycles changed over the last two decades? An empirical investigation

We document the properties of business cycles of 71 countries (23 industrial countries and 48 emerging market economies, or EMEs), from 1970q1 to 2012q4 using the Harding and Pagan dating algorithm. First, recessions are deeper, steeper and costlier among EMEs (especially in East Asia and Latin America). Second, recoveries are swifter and stronger among EMEs, partly due to stronger rebound effects. Third, recessions became less costly during the globalization period (1985–2007) for industrial countries and EMEs, thus reflecting institutional changes made during the “Great Moderation.” Fourth, the dynamic behavior of macroeconomic indicators around peaks in real GDP is more volatile in downturns associated with crisis compared to other downturns. Fifth, peaks in financial cycles (credit and asset prices) tend to precede peaks in real output cycles. Finally, although both industrial and emerging markets have experienced deep recessions during the recent global financial crisis, the emerging markets have recovered faster.