The Duration of Economic Expansions and Recessions: More than Duration Dependence

Journal of Macroeconomics, Forthcoming

51 Pages Posted: 16 Jul 2008 Last revised: 6 Jul 2009

See all articles by Vitor Castroa

Vitor Castroa

Universidade de Coimbra - Faculty of Economics

Date Written: July 16, 2008

Abstract

One widespread idea in the business cycles literature is that the older is an expansion or contraction, the more likely it is to end. This paper tries to provide further empirical support for this idea of positive duration dependence and, at the same time, control for the effects of other factors like leading indicators, the duration of the previous phase, investment, price of oil and external influences on the duration of expansions and contractions. This study employs for the first time a discrete-time duration model to analyse the impact of those variables on the likelihood of an expansion and contraction ending for a group of industrial countries over the last fifty years.

The evidence provided in this paper suggests that the duration of expansions and contractions is not only dependent on their actual age: the duration of expansions is also positively dependent on the behaviour of the variables in the OECD composite leading indicator and on private investment, and negatively affected by the price of oil and by the occurrence of a peak in the US business cycle; the duration of a contraction is negatively affected by its actual age and by the duration of the previous expansion.

Keywords: Business cycles, Expansions, Contraction, Duration dependence, Duration models

JEL Classification: C41, E32

Suggested Citation

Castro, Vitor Manuel Alves, The Duration of Economic Expansions and Recessions: More than Duration Dependence (July 16, 2008). Journal of Macroeconomics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1161071 or http://dx.doi.org/10.2139/ssrn.1161071

Vitor Manuel Alves Castro (Contact Author)

Universidade de Coimbra - Faculty of Economics ( email )

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