Measuring and Predicting Heterogeneous Recessions

Cem Çakmaklı, Richard Paap and Dick van Dijk

Koç University-TUSIAD Economic Research Forum Working Papers from Koc University-TUSIAD Economic Research Forum

Abstract: This paper conducts an empirical analysis of the heterogeneity of recessions in monthly U.S. coincident and leading indicator variables. Univariate Markovswitching 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.

Keywords: Business cycle; phase shifts; regime-switching models; Bayesian analysis (search for similar items in EconPapers)
JEL-codes: C11 C32 C51 C52 E32 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2012-02
New Economics Papers: this item is included in nep-for
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Related works:
Journal Article: Measuring and predicting heterogeneous recessions (2013)
Working Paper: Measuring and Predicting Heterogeneous Recessions (2011)
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