Disentangling Economic Recessions and Depressions

33 Pages Posted: 21 Jun 2016

See all articles by Bertrand Candelon

Bertrand Candelon

University of Maastricht - Department of Economics

Norbert Metiu

Deutsche Bundesbank

Stefan Straetmans

Maastricht University ; University of Antwerp - Faculty of Applied Economics

Date Written: 2013

Abstract

We propose a nonparametric test that distinguishes 'depressions' and 'booms' from ordinary recessions and expansions. Depressions and booms are defined as coming from another underlying process than recessions and expansions. We find four depressions and booms in the NBER business cycle between 1919 and 2009, including the Great Depression and the World War II boom. Our results suggest that the recent Great Recession does not qualify as a depression. Multinomial logistic regressions show that stock returns, output growth, and inflation exhibit predictive power for depressions. Surprisingly, the term spread is not a leading indicator of depressions, in contrast to recessions.

Keywords: Business cycles, Depression, Leading indicators, Multinomial logistic regression, Nonparametric statistics, Outlier

JEL Classification: C14, C35, E32

Suggested Citation

Candelon, Bertrand and Metiu, Norbert and Straetmans, Stefan, Disentangling Economic Recessions and Depressions (2013). Bundesbank Discussion Paper No. 43/2013, Available at SSRN: https://ssrn.com/abstract=2796940

Bertrand Candelon (Contact Author)

University of Maastricht - Department of Economics ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

Norbert Metiu

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Stefan Straetmans

Maastricht University ( email )

Tongersestraat 53
Maastricht, 6200 MD
Netherlands

HOME PAGE: http://www.stefanstraetmans.com

University of Antwerp - Faculty of Applied Economics ( email )

Prinsstraat 13
Antwerp, B-2000
Belgium

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