Measuring and Predicting Heterogeneous Recessions

Cem Çakmaklı, Richard Paap and Dick van Dijk

No 11-154/4, Tinbergen Institute Discussion Papers from Tinbergen Institute

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.

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)
Date: 2011-11-03, Revised 2011-11-15
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https://papers.tinbergen.nl/11154.pdf (application/pdf)

Related works:
Journal Article: Measuring and predicting heterogeneous recessions (2013)
Working Paper: Measuring and Predicting Heterogeneous Recessions (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20110154

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