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Differentiating between business cycles and growth cycles: evidence from 15 developed countries

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  • Kosei Fukuda

Abstract

Growth cycles are often mistaken for business cycles, although these two have different statistical properties. In order to differentiate between them in a statistically satisfactory manner, the Bayesian information criterion-(BIC) based model-selection approach is presented. Business cycles are described by the cyclical trend model, and growth cycles are described by the trend-plus-cycle model. Whether the observed time series is derived from business cycles or from growth cycles is determined as a result of model selection. It is shown via data-based simulations that the proposed method works well in most situations. Empirical results obtained for 15 countries suggest that the business cycle model is selected for five countries, the growth cycle model is selected for two countries and the trend-plus-noise model is selected for eight countries.

Suggested Citation

  • Kosei Fukuda, 2008. "Differentiating between business cycles and growth cycles: evidence from 15 developed countries," Applied Economics, Taylor & Francis Journals, vol. 40(7), pages 875-883.
  • Handle: RePEc:taf:applec:v:40:y:2008:i:7:p:875-883
    DOI: 10.1080/00036840600749862
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    References listed on IDEAS

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    1. Victor Zarnowitz, 1992. "Business Cycles: Theory, History, Indicators, and Forecasting," NBER Books, National Bureau of Economic Research, Inc, number zarn92-1.
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    Cited by:

    1. Robert Pater, 2014. "Are there two types of business cycles? a note on crisis detection," "e-Finanse", University of Information Technology and Management, Institute of Financial Research and Analysis, vol. 10(3), pages 1-28, December.

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