Business cycle duration dependence and foreign recessions

17 Pages Posted: 4 Dec 2018

See all articles by Gabe de Bondt

Gabe de Bondt

European Central Bank (ECB)

Philip Vermeulen

European Central Bank (ECB)

Date Written: November 22, 2018

Abstract

We estimate business cycle regime switching logit models for G7 countries to determine the effect of duration of the current business cycle phase and of foreign recessions on the likelihood that expansions and recessions come to an end. With respect to expansions in a G7 country, we find that the probability they end roughly doubles each time another G7 country falls into a recession. We also find that expansions in the US and Germany are duration dependent, i.e. are more likely to end as they grow older. This contrasts with other G7 countries where expansions are not duration dependent. With respect to recessions in a G7 country, we find that the likelihood of them coming to an end is not affected by other G7 countries' recessions. We find duration dependence of recessions for all G7 countries, i.e. recessions that have gone on for a while are more likely to end.

Keywords: duration dependence, recessions, regime switching logit model, business cycles

JEL Classification: E32, C41

Suggested Citation

de Bondt, Gabe and Vermeulen, Philip, Business cycle duration dependence and foreign recessions (November 22, 2018). ECB Working Paper No. 2205. Available at SSRN: https://ssrn.com/abstract=3289562

Gabe De Bondt

European Central Bank (ECB) ( email )

Eurotower
Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany
+49 69 13440 (Phone)
+44 69 1344 6000 (Fax)

Philip Vermeulen (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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