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The European way out of recession

Author

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  • Bec, F.
  • Bouabdallah, O.
  • Ferrara, L.

Abstract

This paper proposes a two-regime Bounce-Back Function augmented Self-Exciting Threshold AutoRegression (SETAR) which allows for various shapes of recoveries from the recession regime. It relies on the bounce-back effects first analyzed in a Markov-Switching setup by Kim, Morley and Piger [2005] and recently extended by Bec, Bouabdallah and Ferrara [2011a]. This approach is then applied to post-1973 quarterly growth rates of French, German, Italian, Spanish and Euro area real GDPs. Both the linear autoregression and the standard SETAR without bounce-back effect null hypotheses are strongly rejected against the Bounce-Back augmented SETAR alternative in all cases but Italy. The relevance of our proposed model is further assessed by the comparison of its short-term forecasting performances with the ones obtained from a linear autoregression and a standard SETAR. It turns out that the bounce-back models one-step ahead forecasts generally outperform the other ones, and particularly so during the last recovery period in 2009Q3-2010Q4.

Suggested Citation

  • Bec, F. & Bouabdallah, O. & Ferrara, L., 2012. "The European way out of recession," Working papers 360, Banque de France.
  • Handle: RePEc:bfr:banfra:360
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    References listed on IDEAS

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    1. Frédérique BEC & Othman BOUABDALLAH & Laurent FERRARA, 2011. "The Possible Shapes of Recoveries in Markov-Switching Models," Working Papers 2011-02, Center for Research in Economics and Statistics.
    2. Michael P. Clements & Hans-Martin Krolzig, 1998. "A comparison of the forecast performance of Markov-switching and threshold autoregressive models of US GNP," Econometrics Journal, Royal Economic Society, vol. 1(Conferenc), pages 47-75.
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    11. George Kapetanios, 2003. "Threshold models for trended time series," Empirical Economics, Springer, vol. 28(4), pages 687-707, November.
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    Cited by:

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    2. Moritz Cruz, 2015. "The need for official reserves in Latin America: Assessing the precautionary motive, 1995-2011," Revista Cuadernos de Economía, Universidad Nacional de Colombia -FCE - CID, March.

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    More about this item

    Keywords

    Threshold autoregression; bounce-back effects; asymmetric business cycles.;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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