The brevity and violence of contractions and expansions

Abstract

Early studies of business cycles argued that contractions in economic activity were briefer (shorter) and more violent (rapid) than expansions. This paper systematically investigates this claim and in the process discovers a robust new business cycle fact: contractions in employment are briefer and more violent than expansions but we cannot reject the null of equal brevity and violence for expansions and contractions in output.The di¤erence arises because employment typically lags output around peaks but they coincide in their troughs. We discuss the performance of existing business cycle models in accounting for this fact, and conclude that none can fully account for it. We then show that a business cycle model with asymmetric adjustment costs on employment and a choice of when to scrap old technologies can account for the business cycle fact both qualitatively and quantitatively.JEL classi…cation: E32, E23, E24, J60.

Cycles inside cycles: Spanish regional aggregation

“…The original algorithm considers a minimum phase-length criterion of 5 months and cycle-length criterion of 15 months, but the amplitude of expansions and recessions is not taken into account. However, other works (Artis et al 1997;Mönch and Uhlg 2005;McKay and Reis 2008) have included additional restrictions in accordance with the specific features of the data that can differ from the established by the NBER for US. So, taking into account the characteristics of our data, we have incorporated a minimum amplitude criterion that excludes phases (peak to trough or trough to peaks) that have an amplitude of less than one standard deviation of the corresponding growth rates (negative or positive) in the series to be dated.…”

Leverage and Deepening Business Cycle Skewness

“…However, to compare the relative magnitude of di¤erent recessions over a period that displays major changes in the volatility of the business cycle, it is appropriate to control for the average variability of the cycle around a given recessionary episode. To this end, the second column of For earlier analyses on the violence and brevity of economic contractions see Mitchell (1927) and, more recently, McKay and Reis (2008). 8 The volatility is calculated as the standard deviation of the year-on-year growth rate of real GDP over a 5-year window.…”

Ecological Econophysics for Degrowth

“…GDP time series do not display any clear asymmetry in increases and decreases of GDP (but changes in GDP are a poor indicator of structures being lost or generated). The generation of jobs is generally slower than their destruction [122], but the difference is too small to talk of separation of time scales. Gabaix [123] showed that many macroeconomic fluctuations result from fluctuations in large firms, but these include both increases and decreases in activity, with no apparent asymmetry; moreover, none of the examples that he examined in more detail involved the failure of the firm causing the fluctuation.…”