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European Business Cycles: New Indices and Analysis Of Their Synchronicity
Abstract
his article presents a new type of business-cycle index that allowsM for cycle-to-cycle comparisons of the depth of recessions within a country,M cross-country comparisons of business-cycle correlation andM simple aggregation to arrive at a measure of a European business cycle.M The paper examines probit-type specifications of binary recession/expansionM variables in a Gibbs-sampling framework, wherein it is possible to incorporateM time-series features to the model, such as serial correlation,M heteroscedasticity and regime switching. The data-augmentation impliedM by Gibbs sampling generates posterior distributions for a latent coincidentM business-cycle index and extracts information from indicator variables,M such as the slope of the yield curve.M Sub-sample correlations between an aggregated `Europe'' index andM the national business-cycle indices from France, Germany, ItalyM are consistent with the claimM that the European economies are becoming more harmonizedM over time, but there is no guarantee that this patternM will hold in the future.
... The …rst question that we address is to examine whether these countries exhibit business cycle 1 6 Owing to data availability, we exclude the new EU members from this last analysis. 13 features that were similar enough to consider that there are di¤erentiated European business cycle characteristics. On the basis of the mixture clustering approach, the analysis may be reduced to compare the likelihoods of forming just one cluster of countries with the alternative scenario of two (or more) clusters. ...
... In addition, with the exception of Malta for which the data were unavailable, we include the new members: Cyprus (CY), Estonia (ET), Latvia (LA), Lithuania (LI), Poland (PO), Slovakia (SK), Slovenia (SL), the Czech Republic (CZ), Hungary (HN), and Romania (RO). Finally, Turkey (TK) and four industrialized economies, Canada (CN), Japan (JP), Norway (NW) and the United States (US), have been taken as reference.The …rst best on business cycle studies consists on identifying business cycles on the basis of measures of aggregate economic activity.13 However, due to data availability problems, we concen-trate on the analysis of the (seasonally adjusted) Industrial Production (IP) index extracted from the OECD Main Economic Indicators and the IMF international Financial Statistics Databases.As documented byArtis et al. (2005), in contrast to Gross Domestic Product (GDP) series, the IP series are available monthly, are more homogeneous across countries, and usually cover longer samples. ...
This paper provides a comprehensive framework to analyze business cycle features other than synchronization. We use stationary bootstrap and model-based clustering methods to analyze similarities and differences among the European cycles. We find evidence that the length, deep and shape of cycles differ across European countries and that these differences are not decreasing over time. Finally, even though we find some correlation between business cycle synchronization and characteristics, there is important information in the characteristics that is not captured by the synchronization measures.
... Bofinger et al. (2009) explore the international business cycle connection of Germany and the related shock transmissions. Dueker and Wesche (2003) analyze the synchronization and leading pattern of Germany, the UK, the US, Italy, and France. Crowley and Mayes (2008) discover a high commonality of the business cycle phases of France, Germany, and Italy applying wavelet analysis. ...
This paper investigates Liechtenstein’s business cycle compared to its neighboring countries (Switzerland, Austria) and other countries with strong economic relations with Liechtenstein (Germany, Italy, France, USA). In contrast to the widespread notion of small countries “importing” the business cycle from bigger nations, it is shown that the real GDP of the microstate Liechtenstein is a leading indicator for the economy of its bigger neighbor Switzerland, regarding the growth rates as well as the output gap. This finding is based on cross correlation analyses and single- and multi-equation Granger causality tests, applying annual data from 1972 until 2014 or 2015. The significant GDP lead of one year is robust across all the various time frames and model specifications and seems to be driven by the goods exports. Also, Liechtenstein seems to react earlier to US business cycle fluctuations. This finding is not only interesting in the context of Liechtenstein and Switzerland but also encourages further research as it indicates the possibility that very small states are not only more exposed to foreign shocks, react more sensitively to international economic fluctuations, and are more volatile than their big “patron” nations—all stylized facts from small state economics literature—, but that their business cycles could be affected earlier.
... By applying the Generalized Method of Moments approach for the comparison of the cyclical components, they conclude that despite the converging course of EU cycles, the respective business cycles of the US districts are far more synchronized than those of the European economies. Working in a methodological framework similar to Markov chain processes, Dueker and Wesche (2003) ...
This survey provides an up-to-date summary of the literature that relates to the study of business cycle synchronization. Various paths have been followed through time in empirically testing business cycle co-movement and different data sets have been explored so that to date consensus still dissolves. These studies fall into two major categories: those dealing with the existence of business cycle convergence and the ones trying to identify the macroeconomic variables that induce the co-movement patterns. With respect to the first category and despite the varying empirical results, the majority of studies present evidence in favor of macroeconomic convergence in certain country groups, e.g., the members of the EMU and the US states. Regarding the second category of studies, most authors provide evidence that designates the intensity of trade as a robust factor that induces convergence. We classify the literature into groups depending on the methodology followed in order to provide to the reader a consistent and comprehensive guide. Moreover, we contribute to the existing literature by presenting a novel methodology for analyzing business cycle convergence patterns using tools from Graph Theory and the Minimum Dominating Set technique. © 2014 Springer Science+Business Media New York. All rights are reserved.
... He concludes, however, that one cannot say a lot in its favour. An extensive analysis of the European business cycle is also provided by Michael Dueker and Katrin Wesche (2001), Michael Artis, Massimiliano Marcellino, and Tommaso Proietti (2003), Michael U. Bergman (2004), andPaul Omerod (2005). ...
The synchronization of business cycles represents one of the conditions that countries have to fulfil to become part of an optimum currency area, as well as a condition for the efficient implementation of a common economic policy in these countries. This paper examines the extent to which Serbia and its neighbouring countries fulfil these conditions, taking the euro area as an optimum currency area. By applying the Hodrick-Prescott and the band-pass filters, as well as the Pearson correlation coefficient and the Spearman rank correlation coefficient, this paper examines the synchronization of business cycles in these countries. Taking Serbia as an example, the influence of the foreign trade volume between two countries on the similarity of their business cycles is tested. The results show a lower harmonization of business cycles in Serbia with those in the euro area, when compared with the selected neighbouring countries, and do not confirm the thesis on the influence of the foreign trade volume on the harmonization of business cycles.
... Their results confirm the existence of an Englishspeaking and an European group, with high within-group comovements and low between-group comovements. Dueker and Wesche (2001) propose an augmented Probit model with Markov-Switching to compute business cycle indexes. They detect a substantial increase in the correlation between the indexes of Germany, France, Italy and an European Index. ...
... regimes, the birth of the 1 Other empirical research has used several and sophisticated statistical tools to detect comovement changes and yet has only led to contrasting conclusions. Agresti and Mojon (2001) extract stylized facts from Euroarea economies that indicate the presence of a signi…cant degree of likeness between European and US cycles. Dueker and Wesche (2003) extend probit models with time-series features such as autoregressive variables and Markov regime switching, use Bayesian techniques, construct new indices, and …nd that the evolution of correlation coe¢ cients is consistent with the claim that European economies are becoming more harmonized. Artis (2003) constructs structural innovatio ...
Since the 1970s the characteristics of international business cycles have changed and deeper economic integration has modified the features of cross-country comovement. We formally test for correlation shifts in measures of real economic activity and economic/financial integration. In Europe we find some statistically significant evidence of higher correlations following the creation of the EMU in 1999 for several subgroups of countries. We detect significantly more pronounced correlations between Mexico and the US and between Mexico and Canada in North America after the enforcement of the NAFTA in 1994. Results are derived from an econometric framework based on nonparametric iterated stationary bootstrap methods, whose statistical reliability and performance we assess through Monte Carlo simulations.
... The main finding was that successful exchange rate regimes impose policy disciplines that are likely to lead to conformity in the business cycles of participating countries. Furthermore, they argued that business cycle affiliation of E.R.M. member states has shifted from the United States of America (U.S.A.) to Germany since the formation of E.R.M. Duecker and Wesche (1999) provided evidence in favour of the view that European economies become more harmonised over time, but there is no guarantee that this pattern will hold in the future. Christodoulakis, Dimelis, and Kollintzas (1995) compared business cycle features of the E.U. economies using quarterly and annual data since 1960. ...
This paper deals with business cycle synchronization and clustering in Europe. It makes an attempt to answer some fundamental economic questions regarding European countries’ business cycles in the 1960–2009 time span, by breaking the period down into three sub-periods based on major institutional changes (i.e. 1960–1991, 1992–1999, 2000–2009) and other relevant criteria. In this context, various techniques have been used, including pair-wise correlation and the so-called rolling window approach, spectral analysis and k-means clustering. Our results seem to suggest a core–periphery distinction in Europe. Also, the paper argues that European countries increased their synchronization in the time period 1992–1999, while the 2000–2009 time span is, in general, characterised by decreasing synchronization and an increase in the number of clusters. Our findings deserve careful screening and thus future research on the subject would be of great interest.
... Following Massman and Mitchell (2003) we call "classical cycles" the cycles that are defined in terms of turning points in the original series while "growth cycles" mean "deviations" from a trend. Artis et al. (2003) x x Dueker and Wesche (1999) x Harding and Pagan (2001) x Krolzig (2001) x Massman and Mitchell (2003) x Ormerod and Mounfield (2002) x x 2. Growth cycle Artis et al. (2003) x x Artis and Zhang (1999) x x Agresti and Monjon (2001) x Harding and Pagan (2001) x x Holmes (2002) x x Inklaar and de Haan (2001) x Krolzig (2001) x Massman and Mitchell (2003) x Artis & Zang(1997) x x 3. Miscellani Angeloni and Dedola (1999) x x Note: Harding and Pagan (2001) found a very weak correlation between European business cyles. We interpret their finding as a lack of robust evidence of the classical EBC existence. ...
In this paper we empirically investigate a possible transmission of the European business cycle to Sub-Saharan AfricaÕs economies. This linkage may be of interest because the EMU is the main trading partner of African countries, and many of these countries use the euro as either the official or a de facto anchor in order to keep the exchange rate fixed or stable. After identifying possible theoretical channels of transmission, we test whether the relevant economic variables in Africa are sensitive to the fluctuations of European economic activity. Using either a Euro area GDP series or a Stock and Watson approach in order to build indicators of economic fluctuations to Sub-Saharan Africa despite the appealing theoretical linkages between the two areas. The most important relationship we manage to disentangle is between the European and African monetary policies.
Bu çalışmada, temel ekonomik göstergeleri uzun dönem faiz oranı, döviz kuru, enflasyon oranı, işsizdik oranı, büyüme oranı, cari işlemler dengesi (GSYİH’nın % olarak), borç (GSYİH’nın % olarak) ve açık (GSYİH’nın % olarak)) temelinde 1987-2002 yılları arasında Eurozone’daki ülkelerin konjonktür dalgalanmalarının senkronizasyonu İncelenmektedir. EMU’ya girmeden önce adayların çeşitli uyumlaştırması kriterlerini yerine getirmesi gerekir. Birinci kısımda, Euro’nun etapları incelenmektedir.Takip eden kısımda, Euro’nun güçlü yanları, zayıflıkları, fırsatlar ve tehlikeler (SWOT) analizi yapılmıştır. Çalışmanın metodolojisiyle doğrudan alakalı literatür araştırmalarının yer aldığı kısmı takiben elde edilen verilerle Eurozone ülkelerinin konjonktür dalgalanmalarının karşılaştırması yapılmıştır. Ülkelerin bu dönemdeki makroekonomik göstergelerinde eş zamanlılık düzeyinin yüksek olmasına karşın, dalga boylarının birbirlerine göre farklılıklar arz ettiği görülmüştür. Ayrıca çalışmada EMU’nun piyasa giriş tarihi ile beraber bu dalga boylarının birbirlerine daha çok yakınlaştığı ve dalgalanmaların boylarının ise daha küçüldüğü sonucuna varılmıştır.
I estimate a forward-looking, dynamic, discrete-choice monetary policy reaction function for the U.S. economy that accounts for the fact that there are substantial restrictions in the period-to-period changes of the policy instrument. I find a substantial contrast between the periods before and after Paul Volcker's appointment as Fed chairman in 1979, both in terms of the Fed's response to expected inflation and in terms of its response to the (perceived) output gap. In the pre-Volcker era, the Fed's response to inflation was substantially weaker than in the Volcker–Greenspan era; conversely, the Fed seems to have been more responsive to (inaccurate real-time estimates of) the output gap in the pre-Volcker era than later. These results, which carry through a series of extensions and robustness checks, provide support for the “policy mistakes” hypothesis as an explanation of the stark contrast in U.S. macroeconomic performance between the pre-Volcker and the Volcker–Greenspan periods.
Abstract and Key Results
This paper’s objective is to articulate, more precisely than has occurred in the past, the principal theory rationales underlying the Multinationality/Performance (M/P) link, by examining each claim for the negative or positive benefits of internationalization, from the lens of the theory of the firm and the multinational enterprise. A concurrent objective of this paper is to respond to critiques of M/P theory and discuss methodology and operationalization problems in empirical testing.
While international expansion of a firm will not necessarily always improve performance (during the initial international expansion stage, or in cases where a firm may have over-internationalized), for the most part, over the considerable middle range of expansion, net positive benefits accrue from internationalization. Underlying theory rationales are detailed in the paper.
The results of over one hundred empirical studies over the past 30 years appear, on superficial examination, to be contradictory, but can be reconciled by the recently proposed 3-stage or S-shaped general theory.
This paper proposes a probit regression with autocorrelated errors (PAR) to estimate the reaction function of monetary policy in Taiwan using newly constructed binary monetary indicators. We develop a practical sampling scheme via the Gibbs sampling algorithm with data augmentation to make posterior inference of the binary monetary policy reaction function. In contrast to the conventional approach, our method avoids the problem of multiple integrals by directly drawing values of latent variables from the relevant full conditional density along with all the other parameters. Empirical results show that the monetary authority responds to macroeconomic conditions asymmetrically. Specifically, in the high-inflation regime, a contractionary monetary policy is implemented to reduce the inflation rate. Once inflation is under control, that is, in the low-inflation regime, attention is paid to stimulating the growth of the economy.
The purpose of this paper is to examine the effectiveness of the policies and procedures towards economic convergence between the countries that participated in the European Exchange Mechanism I and which are now members states of the Eurozone. The question posed is whether the introduction of the common currency has strengthened the synchronisation of the business cycles of the member states or it has acted as the monetary ground for the creation of a multi-speed Europe that includes economies that bear little resemblance in terms of their basic economic features and figures and especially with respect to the fluctuations in their Gross Domestic Product. The empirical analysis is done through the use of linear regressions, the estimation of the correlation coefficient, and also a proposed sign concordance index (SCI). The results provide evidence that the synchronisation of the cycles seems to become weaker since the adoption of the new currency. Especially for G6, the group of the smaller regional economies, the results are consistent throughout all three methodologies used and for both groups of countries’ cycles used as a comparison base, the broad EU15 and the narrow G3.
A dynamic Tobit model with Time-varying parameters is proposed for the daily reaction function of the Open Market Desk of the US Federal Reserve. Such a model offers a more realistic depiction of the Desk's behavior than those of past contributions in the literature as it allows for both possible dynamics in the Desk's daily operations and for day-to-day time varying responses of the Desk to changing conditions in the reserves markets and in the short-term interest rates. Ensuing computational complications are overcome by employing Markov Chain Monte Carlo techniques for the estimation of the model. The results reveal a rich pattern of dynamic behavior by the Open Market Desk both inside the maintenance period and across maintenance periods and point towards a Desk which is highly adaptable to evolving conditions both in the economy in general and in the market for reserves in particular
In this paper, we focus on how European economic integration has affected the synchronization and the magnitude of business cycles among participating countries. We measure, based on bandpass filtered data, the characteristics of European business cycles analyzing to what extent they have become more similar over time. We also consider the role of other factors such as differences in fiscal and monetary policy, border effects, and trade intensity. Our main finding is that European business cycles are highly synchronized, although we also find that synchronization was higher during periods with highly flexible exchange rates. In addition we find a positive tradeoff between timing and magnitude such that more synchronization coincides with larger relative magnitude. These results raise concern about the consequences of a common monetary policy within EMU.
This paper reassesses, at the light of economic and financial theory, the well-documented recent evolution of the euro area public debt and equity markets. Doing so leads to associating the EMU and the single market with the changes in fundamentals and financial integration with convergence in pricing. For the public debt market, we stress the observation, conform with predictions, that risk free interest rates are now less volatile in the euro area. But also the fact that the establishment of a single public debt market is still not completed. The current fragmentation is costly to Treasuries and taxpayers and understanding its cause is important to evaluate the prospects of currently considered measures of financial integration.
This article presents a new Qual VAR model for incorporating information from qualitative and/or discrete variables in vector autoregressions. With a Qual VAR, it is possible to create dynamic forecasts of the qualitative variable using standard VAR projections. Previous forecasting methods for qualitative variables, in contrast, only produce static forecasts. I apply the Qual VAR to forecasting the 2001 business recession out of sample and to analyzing the Romer and Romer (1989) narrative measure of monetary policy contractions as an endogenous variable in a VAR. Out of sample, the model predicts the timing of the 2001 recession quite well relative to the recession probabilities put forth at the time by professional forecasters. Qual VARs -- which include information about the qualitative variable -- can also enhance the quality of density forecasts of the other variables in the system.
The synthesis of the dynamic factor model of Stock and Watson (1989) and the regime-switching model of Hamilton (1989) proposed by Diebold and Rudebusch (1996) potentially encompasses both features of the business cycle identified by Burns and Mitchell (1946): (1) comovement among economic variables through the cycle and (2) nonlinearity in its evolution. However, maximum-likelihood estimation has required approximation. Recent advances in multimove Gibbs sampling methodology open the way to approximation-free inference in such non-Gaussian, nonlinear models. This paper estimates the model for U.S. data and attempts to address three questions: Are both features of the business cycle empirically relevant? Might the implied new index of coincident indicators be a useful one in practice? Do the resulting estimates of regime switches show evidence of duration dependence? The answers to all three would appear to be yes. © 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technolog
This paper examines whether negative innovations to GNP are more or less persistent than positive innovations. We find that once we allow for the impulse response of GNP to be asymmetric, negative innovations to GNP are observed to be much less persistent than positive ones. In particular, the effect of a recession on the forecast of output is found to be negligible after only eight to twelve quarters, while the effect of a positive shock is estimated to be persistent and amplified over time. Our results may therefore help reconcile two antagonistic views about the nature of business cycle fluctuations.
This article explores the development of Economic and Monetary Union in Europe from the Second World War through to the end of 2010. It concentrates primarily on the earlier part of the process and contrasts what has been implemented since 1999 with its antecedents and with the prescriptions suggested by economic theory. It covers the work of the Werner Committee, the European Monetary System (including its Exchange Rate Mechanism), the provisions of the Maastricht Treaty, the Stability and Growth Pact and their implementation.
Successful fixed exchange rate regimes impose policy disciplines that are likely to lead to conformity in the business cycles of the participating countries. This conjecture is borne out in the present paper by the evidence that the business cycle affiliation of ERM member countries has shifted from the United States to Germany since the formation of the ERM. This effect is bolstered by growing links in trade and finance between the European countries. The United Kingdom is conspicuous among these in that its business cycle affiliation did not change in the period of study.
This paper presents a method for testing whether business cycle expansions and contractions at different levels of aggregation, such as regional and national cycles, occur at the same time. The procedure is to fit markov-switching models to the time-series and then apply a bootstrap test of equality to the residuals. Applied to US employment data, the test shows significant differences between fluctuations in US national employment and those in some US states. Application to European data reveals significant differences between employment fluctuations at the aggregate EMU level and those in Germany and France.
A vast literature in statistics, biometrics, and econometrics is concerned with the analysis of binary and polychotomous response data. The classical approach fits a categorical response regression model using maximum likelihood, and inferences about the model are based on the associated asymptotic theory. The accuracy of classical confidence statements is questionable for small sample sizes. In this article, exact Bayesian methods for modeling categorical response data are developed using the idea of data augmentation. The general approach can be summarized as follows. The probit regression model for binary outcomes is seen to have an underlying normal regression structure on latent continuous data. Values of the latent data can be simulated from suitable truncated normal distributions. If the latent data are known, then the posterior distribution of the parameters can be computed using standard results for normal linear models. Draws from this posterior are used to sample new latent data, and the process is iterated with Gibbs sampling. This data augmentation approach provides a general framework for analyzing binary regression models. It leads to the same simplification achieved earlier for censored regression models. Under the proposed framework, the class of probit regression models can be enlarged by using mixtures of normal distributions to model the latent data. In this normal mixture class, one can investigate the sensitivity of the parameter estimates to the choice of “link function,” which relates the linear regression estimate to the fitted probabilities. In addition, this approach allows one to easily fit Bayesian hierarchical models. One specific model considered here reflects the belief that the vector of regression coefficients lies on a smaller dimension linear subspace. The methods can also be generalized to multinomial response models with J > 2 categories. In the ordered multinomial model, the J categories are ordered and a model is written linking the cumulative response probabilities with the linear regression structure. In the unordered multinomial model, the latent variables have a multivariate normal distribution with unknown variance-covariance matrix. For both multinomial models, the data augmentation method combined with Gibbs sampling is outlined. This approach is especially attractive for the multivariate probit model, where calculating the likelihood can be difficult.
In this paper, we develop an aggregation procedure using time-varying weights for constructing the common component of international economic fluctuations. The methodology for deriving time-varying weights is based on some stylised features of the data documented in the paper. The model allows for a unified treatment of cyclical and seasonal fluctuations and also accommodates the dynamic propagation of shocks across countries. We find evidence for a ‘world business cycle’ as well as evidence for a distinct European common component. We also find some evidence that macroeconomic fluctuations have become more closely linked across industrial economies in the period after 1973.
A theory of testing under non-standard conditions is developed. By viewing the likelihood as a function of the unknown parameters, empirical process theory enables us to bound the asymptotic distribution of standardized likelihood ratio statistics, even when conventional regularity conditions (such as unidentified nuisance parameters and identically zero scores) are violated. This testing methodology is applied to the Markov switching model of GNP proposed by Hamilton (1989). The standardized likelihood ratio test is unable to reject the hypothesis of an AR(4) in favour of the Markov switching model. Instead, we find strong evidence for an alternative model. This model, like Hamilton's, is characterized by parameters which switch between states, but the states arrive independently over time, rather than following an unrestricted Markov process. The primary difference, however, is that the second autoregressive parameter, in addition to the intercept, switches between states.
Stochastic substitution, the Gibbs sampler, and the sampling-importance-resampling algorithm can be viewed as three alternative sampling- (or Monte Carlo-) based approaches to the calculation of numerical estimates of marginal probability distributions. The three approaches will be reviewed, compared, and contrasted in relation to various joint probability structures frequently encountered in applications. In particular, the relevance of the approaches to calculating Bayesian posterior densities for a variety of structured models will be discussed and illustrated.
This paper examines the relationship of the term structure of interest rates to monetary policy instruments and to subsequent real activity and inflation in both Europe and the United States. The results show that monetary policy is an important determinant of the term structure spread, but is unlikely to be the only determinant. In addition, there is significant predictive power for both real activity and inflation. The yield curve is thus a simple and accurate measure that should be viewed as one piece of useful information which, along with other information, can be used to help guide European monetary policy.
This paper is concerned with finite mixture models in which the populations from one observation to the next are selected according to an unobserved Markov process. A new, full Bayesian approach based on the method of Gibbs sampling is developed. Calculations are simplified by data augmentation, achieved by introducing a population index variable into the list of unknown parameters. It is shown that the latent variables, one for each observation, can be simulated from their joint distribution given the data and the remaining parameters. This result serves to accelerate the convergence of the Gibbs sample. Modal estimates are also computed by stochastic versions of the EM algorithm. These provide an alternative to a full Bayesian approach and to existing methods of locating the maximum likelihood estimate. The ideas are applied in detail to Poisson data, mixtures of multivariate normal distributions, and autoregressive time series.
In this paper I seek to establish four points: 1.(1) EMU will be a much tighter and more ambitious regime than the gold standard.2.(2) Should misalignment occur under EMU, it could lead to considerable political tension, since most of the short-term economic safety valves are of limited efficacy.3.(3) While a single currency certainly supports a single market, the claim that the former is necessary for the latter is contentious.4.(4) Not only would some well-designed federal fiscal stabilisation help to maintain a single currency, especially on political grounds, but also a single currency could reduce national objections to greater fiscal federalism.
The paper decomposes GDP both in terms of level per capita and growth rate, so as to identify the sources of income differences and of economic growth for all EU27 member states. This accounting approach has multiple advantages, although a number of substantial caveats should be borne in mind when interpreting the results. In particular, the detailed accounting approach helps distinguish exogenous from policy-influenced growth drivers. The combination of lower per-hour productivity and lower labour utilisation is the cause of relatively low per capita GDP in euro area and EU15 countries, while weak productivity remains the main concern in the new member states. GDP growth rate has been broken down into 12 items, including an indicator of labour quality, based upon the composition of employment by educational attainment.
This paper examines the out-of-sample performance of various financial variables as predictors of U.S. recessions. Series such as interest rates and spreads, stock prices, and monetary aggregates are evaluated individually and in comparison with other financial and nonfinancial indicators. The analysis focuses on out-of-sample performance from one to eight quarters ahead. Results show that stock prices are useful with one- to three-quarter horizons, as are some well-known macroeconomic indicators. Beyond one quarter, however, the slope of the yield curve emerges as the clear individual choice and typically performs better by itself out of sample than in conjunction with other variables. © 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technolog
Successful exchange rate regimes impose policy disciplines that are likely to lead to conformity in the business cycles of the participating countries. This conjecture is borne out in the paper by the evidence in it that the business cycle affiliation of Exchange Rate Mechanism (ERM) member countries has shifted from the United States to Germany since the formation of the ERM. This effect is bolstered by the growing links in trade between the EU countries. The United Kingdom is conspicuous among the latter in that its business cycle affiliation did not change in the period covered by the study. Copyright 1999 by Royal Economic Society.
The system of Leading and Coincident Economic Indicators, currently maintained by the U.S. Department of Commerce (DOC), was developed as part of the NBER research program on business cycles over fifty years ago. This paper uses recent developments in econometric methodology and computing technology to take a fresh look at this system. The result is three experimental indexes. The first, constructed using a dynamic factor model, is numerically similar to the current index of coincident indicators maintained by the DOC. The second, an alternative index of leading indicators, is designed to forecast the growth in the DOC index over a six month horizon. The third-a "Recession Index"-estimates the probability that the economy will be in a recession six months hence. Only two of the seven series in the proposed leading index are used by the DOC to construct their index. Of these new series, interest rates (a public-private risk premium and the slope of the yield curve) are found to be particularly useful predictors of future economic activity.
The theory of optimal currency areas states that a single currency zone should have symmetry of shocks and structures across regions. Research on monetary union in Europe has either assumed these conditions to hold close enough not to cause problems, or has focused on asymmetries in shocks. But what if economic structures and/or market responses differ between countries or regions? This paper examines the consequences of a single monetary policy when there are asymmetries in a) the monetary transmissions; b) the wage/price transmissions; and c) private sector asset holdings. We find the first and last destabilize the business cycle, and put countries out of phase with one another in a way that cannot be corrected by deficit constrained fiscal policies. The effect is to delay convergence.
This paper examines whether there exists a close correspondence in the business cycles of the EU economies. We focus on the timing and magnitude of business cycles and propose criteria for defining close correspondence. We suggest that any correspondence that does exist is confined to the EU core and that, contrary to some of the existing literature, there exists a clear core-periphery distinction. This makes us less optimistic about the prospects for EMU if it is not accompanied by institutional arrangements that take into account the differences between EU economies.
Following Estrella and Hardouvelis (1991) and Estrella and Mishkin (1995), we study the ability of the term structure to predict recessions in eight countries. The results are fourfold. First, the yield curve predicts future recessions in all countries. Second, term spreads forecast recessions as much as 2 years ahead. Third, while German and US spreads are frequently significant in the regressions for the other countries, the added information is limited except in Japan and the UK. Fourth, while leading indicators contain information beyond that in term spreads, this information is only useful for forecasting recessions in the immediate future. These findings provide further evidence of the potential usefulness of term spreads as indicators for monetary policy purposes. Copyright @ 1998 by John Wiley & Sons, Ltd. All rights reserved.
Previous time series applications of qualitative response models have ignored features of the data, such as conditional heteroskedasticity, that are routinely addressed in time-series econometrics of financial data. This article addresses this issue by adding Markov-switching heteroskedasticity to a dynamic ordered probit model of discrete changes in the bank prime lending rate and estimation via the Gibbs sampler. The dynamic ordered probit model of Eichengreen, Watson and Grossman (1995) allows for serial autocorrelation in probit analysis of a time series, and the present article demonstrates the relative simplicity of estimating a dynamic ordered probit using the Gibbs sampler instead of the Eichengreen et al. maximum-likelihood procedure. In addition, the extension to regime-switching parameters and conditional heteroskedasticity is easy to implement under Gibbs sampling. The article compares tests of goodness of fit between dynamic ordered probit models of the prime rate that have constant variance and conditional heteroskedasticity.
Past experience has led financial market participants to believe that future interest rates will be closely related to the performance of the economy. If so, the shape of the yield curve ought to summarize the implicit economic forecasts of a broad range of bond traders. Previous research has demonstrated that, relative to carefully tailored forecasting variables such as the index of leading indicators, the yield curve is an excellent predictor of recessions. In this article, Michael Dueker shows that the predictive power of the yield curve does not diminish when examined in the context of econometric models with more sophisticated baseline forecasts.
This paper gives a systematic application of maximum likelihood inference concerning cointegration vectors in non-stationary vector valued autoregressive time series models with Gaussian errors, where the model includes a constant term and seasonal dummies. The hypothesis of cointegration is given a simple parametric form in terms of cointegration vectors and their weights. The relation between the constant term and a linear trend in the non-stationary part of the process is discussed and related to the weights. Tests for the presence of cointegration vectors, both with and without a linear trend in the non-stationary part of the process are derived. Then estimates and tests under linear restrictions on the cointegration vectors and their weights are given. The methods are illustrated by data from the Danish and the Finnish economy on the demand for money. Copyright 1990 by Blackwell Publishing Ltd
The classical gold standard occupies an almost mystical position in the literature of international finance. In popular accounts the gold standard is portrayed as a remarkably durable and efficient mechanism for achieving price and exchange rate stability and for relieving balance of payments pressures. The system's resilience is attributed to the willingness of nationa) monetary authorities to refrain from impeding the international adjustment process. When central banks intervened in financial markets, it is said, they did so mechanically, obeying 'rules of the game' which dictated that they reinforce the impact on domestic money and credit of changing balance of payments conditions. Succeeding generations of economists and historians have sought to qualify this popular view. The recent contributions of Bordo (I98I) and Cooper (i982) make a critical assessment of extravagant claims concerning price and exchange rate stability under the classical gold standard. Other authors have extended the research of Bloomfield (I 959), Ford (I962) and Triffin (I964), who emphasised the special conditions that permitted the classical gold standard's smooth operation and cast doubt on the tendency of national monetary authorities to adhere faithfully to 'rules of the game." All too often, scant mention is made of the interwar gold standard, for it is not evident how interwar experience fits into either view. Certain facts are clear. It is clear that the interwar standard was far from durable; Britain's resumption of gold payments in I925 usually is taken to mark the gold standard's resurrection, just as her devaluation a mere 6 years later is taken as its demise. In the interim many of the major participants suffered serious balance of payments pressures that threatened to render their exchange rates indefensible. The system was anything but conducive to stability; it precluded neither price nor income fluctuations, as the Great Depression dramatically illustrated. Numerous explanations have been advanced for the interwar gold standard's
This paper investigates the basic stylized facts of business cycles in the G7 countries using quarterly data from 1960-89. The methodology used is based on Kydland and Prescott (1990). The evidence suggests that the real business cycles model can account for several important stylized facts for all seven countries. In particular, consumption is procyclical and fluctuates generally less than output; investment is procyclical and fluctuates more than output; net exports are countercyclical; prices are countercyclical; and money does not have a clear-cut cyclical pattern. Real business cycles models cannot at present account for some basic stylized facts of labour dynamics, however, primarily because they cannot account for variations in total hours and hours per worker. This and other evidence suggests that labour hoarding might, especially in Europe and Japan, be the main force behind employment dynamics.
This paper models occasional, discrete shifts in the growth rate of a nonstationary series. Algorithms for inferring these unobserved shifts are presented, a byproduct of which permits estimation of parameters by maximum likelihood. An empirical application of this technique suggests that the periodic shift from a positive growth rate to a negative growth rate is a recurrent feature of the U.S. business cycle, and indeed could be used as an objective criterion for defining and measuring economic recessions. The estimated parameter values suggest that a typical economic recession is associated with a 3 percent permanent drop in the level of GNP. Copyright 1989 by The Econometric Society.
Estimation of limited dependent variable models with dependent observations has received relatively little attention due to
the computational complexity of the maximum likelihood estimator. We develop a computationally attractive and relatively efficient
estimator for this case that utilises the orthogonality conditions. The resulting Generalized Conditional Moment (GCM) estimators
can be applied with a known or an unknown disturbance covariance matrix. Although the paper considers only the probit model,
the approach is easily generalized to other limited dependent variable models.
This article examines differences in expansionary and contractionary phases of the business cycle. By extending the nonlinear Markov-switching estimation method of J. D. Hamilton to incorporate time-varying probabilities of transitions between the phases, the marginal benefits of the time-varying transition probability Markov-switching model are highlighted. Using this technique, the author documents the high correlation between the evolution of the phases inferred from the model and traditional reference cycles for monthly output data. Many of the economic variables that determine the time-varying probabilities help to predict turning points. The predictive power of standard leading indicators is evaluated and compared.
Main Economic Indicators, Sources and Definitions
OECD (2000), "Main Economic Indicators, Sources and Definitions," www.oecd.org/std/
meimeta.pdf.
Zeit zum Handeln-Antriebskräfte stärken
- Sachverständigenrat
Sachverständigenrat (1993), "Zeit zum Handeln-Antriebskräfte stärken," Jahresgutachten 1993/1994, Stuttgart: Metzler-Poeschel.
- D Gros
Identifying the Common Component in International Economic Fluctuations
- R L Lumsdaine
- J H Stock