Template-Type: ReDIF-Paper 1.0 Series: Tinbergen Institute Discussion Papers Creation-Date: 2011-11-03 Revision-Date: 2011-11-15 Number: 11-154/4 Author-Name: Cem Cakmakli Author-Workplace-Name: University of Amsterdam Author-Name: Richard Paap Author-Workplace-Name: Erasmus University Rotterdam Author-Name: Dick van Dijk Author-Workplace-Name: Erasmus University Rotterdam Title: Measuring and Predicting Heterogeneous Recessions Abstract: This paper conducts an empirical analysis of the heterogeneity of recessions in monthly U.S. coincident and leading indicator variables. Univariate Markov switching models indicate that it is appropriate to allow for two distinct recession regimes, corresponding with ‘mild’ and ‘severe’ recessions. All downturns start with a mild decline in the level of economic activity. Contractions that develop into severe recessions mostly correspond with periods of substantial credit squeezes as suggested by the ‘financial accelerator’ theory. Multivariate Markov-switching models that allow for phase shifts between the cyclical regimes of industrial production and the Conference Board Leading Economic Index confirm these findings.
This discussion paper resulted in an article in the Journal of Economic Dynamics and Control (2013). Volume 37, pages 2195-2216. Classification-JEL: C11, C32, C51, C52, E32 Keywords: Business cycle, phase shifts, regime-switching models, Bayesian analysis File-Url: http://papers.tinbergen.nl/11154.pdf File-Format: application/pdf File-Size: 687851 bytes Handle: RePEc:tin:wpaper:20110154