The European Way Out of Recessions

Frédérique Bec, Othman Bouabdallah and Laurent Ferrara
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Othman Bouabdallah: Banque de France, DGEI-DCPM

No 2011-23, THEMA Working Papers from THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise

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.

Keywords: Threshold autoregression; bounce-back effects; asymmetric business cycles. JEL classification: E32; C22. (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: The European Way out of Recession (2013)
Working Paper: The European way out of recession (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:ema:worpap:2011-23

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