The durations of recession and prosperity: does their distribution follow a power or an exponential law?

Abstract

Following findings by Ormerod and Mounfield (Physica A 293 (2001) 573) Wright (The duration of recessions follows an exponential nota power law, cond-mat/0311585) rises the problem whether a power (Ormerod and Mounfield, 2001) or an exponential law (Wright) describes the distribution of occurrences of economic recession periods. In order to clarify the controversy a different set of GDP data are hereby examined. The conclusion about a power law distribution of recession periods seems better though the matter is not entirely settled. The case of prosperity duration is also studied and is found to follow a power law. Universal but also non universal features between recession and prosperity cases are emphasized. Considering that the economy is basically a bistable (recession/prosperity) system we may derive a characteristic (de)stabilisation time. 89.65.Gh; 05.45.Tp; 02.70.Rv Econophysics; Time series analysis; Power law; Exponential law; Recession; Prosperity