Do economies stall? The international evidence

Wai-Yip Alex Ho and James Yetman

No 407, BIS Working Papers from Bank for International Settlements

Abstract: A "stalling" economy has been defined as one that experiences a discrete deterioration in economic performance following a decline in its growth rate to below some threshold level. Previous efforts to identify stalls have focused primarily on the US economy, with the threshold level being chosen endogenously, and have suggested that the concept of a stall may be useful for macroeconomic forecasting. We examine the international evidence for stalling in a panel of 51 economies using two different definitions of a stall threshold (time-invariant and related to lagged average growth rates) and two complementary empirical approaches (insample statistical significance and out-of-sample forecast performance). We find that the evidence for stalling based on time-invariant thresholds is limited: only 12 of the 51 economies in our sample experience statistically significant stalls, and including a stall threshold generally results in only modest improvements to out-ofsample forecast performance. When we instead model the stall threshold as varying with average growth rates, the number of economies with statistically-significant stalls actually declines (to nine), but in 71% of the cases we examine, including a stall threshold results in an improvement in out-of-sample forecast performance.

Keywords: business cycles; stall speed; Markov switching (search for similar items in EconPapers)
Pages: 27 pages
Date: 2013-03
New Economics Papers: this item is included in nep-fdg, nep-for and nep-mac
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:407

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