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No More Rocking Horses: Trading Business-Cycle Depth for Duration Using an Economy-Specific Characteristic

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  • Ossama Mikhail

Abstract

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. In this paper, I propose a stochastic dynamic general equilibrium formulation wherein an economy-specific characteristic - labeled as the missing parameter - (e.g., the financial institutional framework and regulations) does control the magnitude, severity and persistence of the business cycle. The results of the simulations show that as much as 0.5 of a percentage point of GDP in depth and a relative difference of 3 years duration can be attributed to this parameter. Overlooked for decades, this missing parameter hypothesizes that Frisch's 'rocking-horse theory' of the business cycle is an inaccurate description of the business-cycle behavior.

Suggested Citation

  • Ossama Mikhail, 2004. "No More Rocking Horses: Trading Business-Cycle Depth for Duration Using an Economy-Specific Characteristic," Macroeconomics 0402026, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:0402026
    Note: Type of Document - pdf; prepared on Win98; pages: 18; figures: 1
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    2. Mikhail Ossama, 2005. "Economic Freedom and the Business Cycle: The Egyptian Experience," Review of Middle East Economics and Finance, De Gruyter, vol. 3(1), pages 1-19, April.

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    More about this item

    Keywords

    Business Cycle; Depth; Duration; Frisch's Rocking-Horse Theory; Economic Institutions; Real Business Cycles.;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • B25 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Historical; Institutional; Evolutionary; Austrian; Stockholm School
    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F15 - International Economics - - Trade - - - Economic Integration
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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