Business Cycles Across Space and Time

47 Pages Posted: 26 Mar 2019

See all articles by Neville Francis

Neville Francis

University of North Carolina (UNC) at Chapel Hill - Department of Economics

Michael Owyang

Federal Reserve Bank of St. Louis - Research Division

Daniel Soques

University of North Carolina (UNC) at Wilmington

Date Written: 2019-01-22

Abstract

We study the comovement of international business cycles in a time series clustering model with regime-switching. We extend the framework of Hamilton and Owyang (2012) to include time-varying transition probabilities to determine what drives similarities in business cycle turning points. We find four groups, or “clusters�, of countries which experience idiosyncratic recessions relative to the global cycle. Additionally, we find the primary indicators of international recessions to be fluctuations in equity markets and geopolitical uncertainty. In out-of-sample forecasting exercises, we find that our model is an improvement over standard benchmark models for forecasting both aggregate output growth and country-level recessions.

Keywords: Markov-switching, time-varying transition probabilities, cluster analysis

JEL Classification: C11, C32, E32, F44

Suggested Citation

Francis, Neville and Owyang, Michael T. and Soques, Daniel, Business Cycles Across Space and Time (2019-01-22). FRB St. Louis Working Paper No. 2019-10, Available at SSRN: https://ssrn.com/abstract=3358656 or http://dx.doi.org/10.20955/wp.2019.010

Neville Francis (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Chapel Hill, NC 27599
United States

Michael T. Owyang

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
Saint Louis, MO 63011
United States

Daniel Soques

University of North Carolina (UNC) at Wilmington ( email )

601 South College Road
Wilmington, NC 28403
United States

HOME PAGE: http://people.uncw.edu/soquesd/index.html

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