Abstract
Recessions are less frequent (10%), more volatile and less persistent than negative business cycles are (50%). In this article, OECD annual data are used to provide a taxonomy of postwar recessions, showing in particular the frequency, the features and the number of countries involved in major episodes. We shall also implement a simple way for inserting positive (or negative) growth cases into standard business cycle analysis, stressing in particular the importance of recessions for stabilization policies. This applies mostly to fiscal policies that risk otherwise to be more pro-cyclical than normally required.
Highlights
Recessions differ from negative real GDP cycles mainly because they are less frequent, more volatile and less persistent
OECD annual data are used to provide a taxonomy of postwar recessions, showing in particular the frequency, the features and the number of countries involved in major episodes
The classical approach was started at the National Bureau of Economic Research (NBER) by Burns and Mitchell [3] and was mainly used for combining short-run forecasting and business cycle evaluation
Summary
Recessions differ from negative real GDP cycles mainly because they are less frequent, more volatile and less persistent. Even the most updated NBER methodology is not interested in evaluating business cycles in the way they are defined in standard macroeconomics, i.e. as stationary persistent and symmetric deviations from a stochastic trend which approximates the underlying growth process, as in Lucas [5]. This definition updates and makes more precise the traditional growth cycle approach which is generally used to obtain zero-mean cycles from the residuals of a trend estimate [6]. Given the obvious limits of stabilization policies in both BC and DE cases, it seems useful comparing the textbook graph with actual data to see if the above-mentioned states are likely as implied by the textbook graphs
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