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Business Cycles with Revolutions

Author

Listed:
  • Lance Kent

    () (Department of Economics, College of William and Mary)

  • Toan Phan

    () (Department of Economics, UNC-Chapel Hill)

Abstract

This paper develops an empirical macroeconomic framework to analyze the relationship between major political disruptions and business cycles of a country. We combine a new dataset of political revolutions (mass domestic political campaigns to remove dictators and juntas) across the world since 1960, with coup data and traditional macro data (of output, investment, trade, inflation and exchange rate). We then build a panel vector-autoregression model with two novel ingredients: (1) political disruptions and (2) an estimated probability of such disruptions. We find that both terms have statistically and economically significant impacts on business cycles. Interestingly, the impacts of the second term dominate those of the first, both statistically and economically. This suggests that our measure of political risk captures an important source of time-varying uncertainty and volatility in many countries.

Suggested Citation

  • Lance Kent & Toan Phan, 2013. "Business Cycles with Revolutions," Working Papers 145, Department of Economics, College of William and Mary.
  • Handle: RePEc:cwm:wpaper:145
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    File URL: http://economics.wm.edu/wp/cwm_wp145.pdf
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    References listed on IDEAS

    as
    1. Elias Papaioannou & Gregorios Siourounis, 2008. "Democratisation and Growth," Economic Journal, Royal Economic Society, vol. 118(532), pages 1520-1551, October.
    2. Dominik Noe & Admasu Shiferaw, 2013. "Low-intensity Conflict and Firm Level Investment in Ethiopia," Working Papers 141, Department of Economics, College of William and Mary, revised 05 Dec 2013.
    3. Acemoglu, Daron & Robinson, James A., 2000. "Democratization or repression?," European Economic Review, Elsevier, vol. 44(4-6), pages 683-693, May.
    4. Valerie A. Ramey, 2011. "Identifying Government Spending Shocks: It's all in the Timing," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 1-50.
    5. repec:cup:apsrev:v:97:y:2003:i:01:p:75-90_00 is not listed on IDEAS
    6. Robert J. Barro, 2006. "Rare Disasters and Asset Markets in the Twentieth Century," The Quarterly Journal of Economics, Oxford University Press, vol. 121(3), pages 823-866.
    7. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, May.
    8. Daron Acemoglu & James A. Robinson, 2000. "Why Did the West Extend the Franchise? Democracy, Inequality, and Growth in Historical Perspective," The Quarterly Journal of Economics, Oxford University Press, vol. 115(4), pages 1167-1199.
    9. Xavier Gabaix, 2012. "Variable Rare Disasters: An Exactly Solved Framework for Ten Puzzles in Macro-Finance," The Quarterly Journal of Economics, Oxford University Press, vol. 127(2), pages 645-700.
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    More about this item

    Keywords

    business cycles; political risk; time-varying uncertainty; panel VAR;

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