Statistical Modeling of Duration Dependence in Business Cycles Using a Modulated Power Law Process

Abstract

Applying the modulated power law process, a generalized model which is a compromise between a renewal process and a nonhomogeneous Poisson process, we find the presence of positive duration dependence in all samples, although the magnitudes vary from sample to sample. A goodness-of-fit test rejects the renewal process assumption which was used in many previous studies, and suggests that a more general model such as the modulated power law process is needed.