Business Cycle Effects Research Articles

The effect of business cycle on the relationship between market structure and industrial performance in the Indonesian food and beverage industry

The effect of business cycle on the relationship between market structure and industrial performance in the Indonesian food and beverage industry

Effect of Business Cycle, Income Diversification, and Financial Ratios on Bank Risk in the ASEAN Region

Research Aims: This research aims to analyze the influence of the business cycle, income diversification, and financial ratios as proxied by profitability and liquidity on the level of banking risk adjustment in ASEAN in the 2020-2022 period. Design/methodology/approach: The research used a sample of 93 banks in the ASEAN region. Sample selection applied purposive sampling techniques based on certain criteria in the Philippines, Indonesia, Malaysia, Singapore, Thailand and Vietnam. The estimation technique used is the Ordinary Least Square method on panel data to analyze the model being built. Research Findings: Research shows that the relationship between the business cycle and bank risk is negative. This means that when the economy is in a contraction phase, bank risk will decrease and vice versa. Then, banks that diversify their income can reduce bank risk. On the other hand, the influence of profitability and liquidity has a negative effect, meaning that a high level of income accompanied by liquid bank assets has the potential to reduce the level of bank risk. Apart from that, there are several other aspects that banks need to pay attention to in anticipating emerging risks, including previous year's credit risk, business size, loan loss reserves, asset growth and financial freedom. Theoretical Contribution/Originality: The originality of the research lies in its comprehensive approach to analyzing the impact of business cycles, income diversification, and financial ratios on bank risk in the ASEAN region. The study's methodology, variables, and empirical evidence all contribute to its originality and relevance to the existing literature Keywords: Revenue Diversification, Liquidity, Profitability, Bank Risk, Business Cycle

Post-compulsory schooling of youth in Turkey: a case of pro-cyclical enrollment

PurposeThis study investigates the effect of business cycles on school enrollment in Turkey. During recessions, school enrollment might increase as opportunity cost of schooling declines, yet it might also decrease because of reduced income households have for education. Which effect dominates depends on the context. We empirically explore this in a context displaying canonical features of developing countries.Design/methodology/approachUsing the Turkish Household Labor Force Survey data for a period covering the Great Recession, we estimate the effect of unemployment rate separately for enrollments in general and vocational high schools and in undergraduate programs. To understand the cyclicality, we use a probit model with the regional and time variations in unemployment rates. We also build a simple theoretical model of work-schooling choice to interpret the findings.FindingsWe find that the likelihood of enrolling in general high schools and undergraduate programs declines with higher adult unemployment rates, but the likelihood of enrollment in vocational high schools increases. Confronting these empirical findings with the theoretical model suggests that the major factor in enrollment cyclicality in Turkey is how parental resources allocated to education change during recessions by schooling type.Originality/valueOur finding of pro-cyclical enrollment in academically oriented programs is in contrast with counter-cyclicality documented for similar programs in developed countries, which highlights the importance of income related factors in developing-country contexts. Our heterogeneous findings for general and vocational high schools are also novel.

Assessing the Effect of Stagnant Business Cycles on Risk and Uncertainty in the Stock Markets of Less Developed Countries

The economic movement of countries is not uniform and stable over time and always fluctuates around the long-term growth trend and creates a business cycle meanwhile, the capital market as a backward variable is affected by economic fluctuations therefore, in this research, the issue is looked at from the perspective that¸ can the business cycle of recession be considered as a leading variable in the occurrence and formation of risk and uncertainty in the stock market of countries? To answer this question, first a meta-analysis method and based on the research background, a model of stock market uncertainty was specified In which the growth rate variance of S&P index, which was calculated by GARCH technique, was used as a variable of risk and uncertainty in the stock market of countries, and the HP method was used to calculate business cycles. Balanced data panel technique was used to estimate the model. Which include the fundamental variables of monetary policy (supply of bank credit), fiscal policy (average tax rate), nominal interest rate, capital market size, technical progress variable and stagnant business cycle. The statistical sample of the study includes 14 less developed countries. Less developed countries are defined in terms of their per capita income and in terms of the division of countries in the UN statistical report. The statistics of time series are annual and are related to the time period of 2001-2018. The research findings that were calculated jointly confirmed the effect of the variables in the model ¸it also showed that stagnant cycles as expected have a positive effect on the reduction of risk in the stock market. Classification: JEL E32, G100.

An empirical analysis of Okun’s law at a regional level: evidence from the NUTS 2 European regions

ABSTRACT In this study, Okun’s law is empirically assessed for the 257 NUTS2 (Nomenclature of Territorial Units for Statistics) European regions over the period 2010–2020, which is characterised by intense economic, societal and political changes as a consequence of the 2009 economic crisis, the austerity measures followed and the COVID-19 pandemic outbreak. Okun’s law equation is estimated using instrumental variables regression, employing a two-step methodology: (1) a panel regression estimator to obtain predicted variables of the endogenous variable (Gross Domestic Product (GDP) % change) by including the appropriate instruments in the model, (2) a linear-mixed fixed, random coefficient model and empirical Bayes predictions for the random intercepts and random slopes to obtain Okun’s coefficients. Study results confirm the Okun’s law for all regions under consideration and suggest that unemployment responses to economic growth differ among regions; either due to business cycle effects or structural labour-market factors. For regions depicting the strongest inverse impact of GDP on unemployment, a cyclical recovery is expected to be accompanied by a reduction in unemployment; while the weakest inverse relationship observed is associated with structural factors (i.e. industry composition, labour-force skills, long-term unemployment). At policymaking level, considering regional labour-market idiosyncrasies is of utmost importance to differentiate labour policies.

Business cycle effects on consumer behavior: A conceptual framework and research agenda

AbstractA brand's long‐term success depends on its ability to adapt to changes in the business cycle, during which consumer responses might vary widely. Decades of research on business cycle effects on consumer behavior have led to a diverse, yet scattered body of knowledge. To lay a foundation for moving the field forward, we conduct a semisystematic literature review and differentiate the literature based on (1) behavioral foci studied and (2) underlying theoretical assumptions made. Our review of 55 articles identifies six literature fields that study business cycle effects on consumer behavior, and a multitude of theoretical approaches, which we categorize as mechanical core, affective layer, motivational ground, sociorelational, and cultural background. Next, we integrate commensurable elements of these distinct research traditions in an interdisciplinary, higher‐order conceptual framework of business cycle effects on consumer behavior, underpinned by four fundamental premises that direct marketing practice. Finally, we use these fundamental premises to delineate guidelines that advance the development of business cycle research in marketing, including (but not limited to) focus on consumer well‐being, consumer engagement and digital marketing. The conceptual framework guides the generalizable application of psychological theories to marketing practice during different stages of the business cycle.

Macro Credit Risk Stress Testing in Tanzanian Banking Sector: A Global Vector Autoregressive (GVAR) Approach

ABSTRACT This study conducted a macro credit risk stress testing framework for assessing the impact of global transmissions on Tanzania’s banking sector from Q12006 to Q42020, using the Global Vector Autoregressive Regression (GVAR) model with seven countries. The adoption of the GVAR model enabled us to take into account non-linear relationships, capture business cycle effects and the global interaction. This study focused on assessing the projected responsiveness of Tanzania’s credit risk to shocks originating from domestic, global and foreign variables in relation to USA, China and South Africa. This study found that the global transmissions have an impact on the Tanzanian banking sector, with a significant exposure witnessed from the increase in the crude oil price index. On a domestic level, the results revealed that projected inflation rate shocks have a more responsive impact on banking sector credit risk compared to real GDP growth. In addition, GDP growth shocks from foreign countries have a slight impact on the banking sector compared to exchange rate risk transmission, given the growing global interconnectedness, thus leading to a spillover effect on the banking sector. Conclusively, Tanzania’s banking sector is not invulnerable to domestic, foreign and global shocks, and therefore warrants monitoring to enhance resilience.

Unemployment and Substance Use: An Updated Review of Studies from North America and Europe.

Since the industrial revolution, the relationship between unemployment and psychiatric disorders has been a subject of high interest. Currently, regarding the correlation between unemployment and substance-use disorders (SUDs), only older, often isolated and fragmented research results are available in the literature. This review was based on an extensive literature search of the European and North American literature in most relevant databases for "unemployment" and "substance use" related to "drugs", "alcohol", "nicotine", and "tobacco" between November 2022 and January 2023, according to the PRISMA (Preferred Reporting Items for Systematic review and Meta-Analysis) guidelines. A total of 59,117 papers were identified, of which only 33 articles were identified as relevant to the research objective. The literature showed significantly higher prevalence rates of SUDs involving divergent psychotropic substances among unemployed people. Unemployment was found to be a risk factor for SUD, and vice versa. However, the correlation between unemployment and relapses or smoking cessation was inconsistent. In addition, there appeared to be a mild effect of business cycles on SUD. The results showed significant multifaceted correlations between unemployment and SUD, indicating that prevention and early intervention are required to prevent harmful psychosocial consequences, such as social disintegration and severe psychiatric disorders.

Economic policy uncertainty, jump dynamics, and oil price volatility

Although the underlying forces behind oil price volatility have attracted the attention of scholars, a clear consensus is yet to be achieved on how to quantify the contributions of economic policy uncertainty (EPU) and jump dynamics simultaneously. This paper develops a joint EGARCH-MIDAS-ARJI model to address this issue and break the obstacle of mixed data sampling. To avoid the effect of political and business cycles, all EPU indices are detrended using the Hodrick Prescott (HP) filter. The results show that oil price volatility is adversely associated with EPU. As large EPU values imply that policymakers are trying to make some beneficial efforts, this finding challenges the neoclassical opinion that policy intervention is a source of market fluctuation. We also find that the US policy intervention can reduce only less than 6% of oil price volatility, while the effects of China's economic policy are even weaker. More importantly, jump dynamics still account for a remarkable percentage in oil price volatility, especially during lower volatility periods. Possible explanations are that policy makers only respond to large persistent oil price volatility, while the targets and actions of oil-importing countries and oil-exporting countries are also converse in most cases.

Is There a Business Cycle Effect on the Incidence of Dual Job Holding?

Abstract This paper examines the extent to which the incidence of dual job holding is cyclically sensitive in the context of hours constraints on a worker’s weekly labor supply to their main job. Random effects logit models of the probability of dual job holding are estimated separately for men and women for each of three mutually exclusive, hours-constrained regimes: overemployment, unconstrained hours, and underemployment. As measured by the deviation of each individual’s current regional unemployment rate from their time-averaged mean regional unemployment rate, transitory business cycle movements have no effect on the probability of dual job holding. However, a permanent/steady-state increase (decrease) in the local unemployment rate reduces (raises) the probability of dual job holding among hours-unconstrained workers for both males and females. Furthermore, permanent employment contracts reduce the likelihood of having two jobs.

The heterogeneous welfare effects of business cycles

This study investigates the welfare effects of business cycle fluctuations from a distributional perspective. To this end, we develop a quantitative heterogeneous-agent model which incorporates market incompleteness and non-convexity into the mapping from the time devoted to work to labor services. In this setup, households can insure against aggregate uncertainty using labor and savings and have substantially different labor supply elasticities. We find that the welfare effects are heterogeneous across households, with wealth-rich households benefiting most from business cycles. Wealth-rich households enjoy business cycles more than wealth-poor households, because they experience less volatile consumption and can enjoy higher average income through reallocating savings intertemporally.

Discrimination against women in the local labour markets of Eastern Poland

This study discusses the effect of spatial factors, understood as distances between counties (Pl. ‘powiat’), on the increase in unemployment rates in Eastern Poland, and also aims to determine the effect of business cycles on unemployment by gender. The research project was based on the methods of spatial econometrics used to analyse panel data collected in the period 2010-2020 in 101 counties in Eastern Poland (NUTS 4). The study led to the conclusion that women needed a longer time to get a job than men in the phase of economic expansion. In times of rising unemployment in the local labour markets of Eastern Poland, women left the workforce at a greater rate than men, and when unemployment in those markets fell, women remained out of work for a longer time.

Rational Inattention and the Business Cycle Effects of Productivity and News Shocks

Rational Inattention and the Business Cycle Effects of Productivity and News Shocks

News shocks to investment-specific technology in business cycles

Recent research in DSGE and VAR models has indicated that the most important drivers of business cycles are IST shocks, not traditional TFP and other shocks. Research in VAR models has also empirically identified IST news shocks as a significant driving force behind the U.S. business cycle. However, recent New-Keynesian DSGE models have found that IST news shocks do not produce comovement of aggregate variables, with the share of the forecast error variance explained by IST news shocks being very small in a flexible-price model and essentially zero in a sticky-price model. This paper uses the Bayesian methods to estimate the parameters and shock processes to study the business cycle effects of IST news shocks in a two-sector sticky-price DSGE model with consumer durables and collateral constraints. Our variance decompositions indicate that IST news shocks are a more relevant source of uncertainty than IST non-news and other shocks.

Craig Burnside (ed.). Fiscal Sustainability in Theory and Practice: A Handbook. Washington, D. C.: World Bank. 2005. pp.xx+285. Price not given.

Fiscal sustainability is essential for economic growth and comprises a set of fiscal policies that result in financial solvency over the long run. As such, fiscal sustainability is the prime objective of the World Bank’s Quality of Fiscal Adjustment Thematic Group (QFATG). It is a main issue in developing countries. The articles compiled from many journals here address fiscal sustainability analysis and the practical work undertaken by the Bank’s Development Economic Research Group (DECRG) or Poverty Reduction Economic Management undertaken by the Economic Policy Group (PRMEG) and others. This book, basically a combination of economic theory and practical methods of analysis, provides a simple set of tools to assess a government’s budget and debt position and is a comprehensive source of information on fiscal sustainability. It describes the effects of business cycles on public finance and examines the role of fiscal rule and currency crises and their impact on fiscal sustainability. Some basic concepts are explained, with solutions of complicated practical problems such as contingent liabilities, external debt position, and fiscal federalism.

Assessing the role of economic globalization on energy efficiency: Evidence from a global perspective

There has been concern that economic globalization will increase energy consumption and reduce energy efficiency. A slew of studies investigating this assertion have used trade, foreign investment, or both as indicators of economic globalization, with mixed findings. A number of concerns challenge the empirical literature including measurement issues, infrequent temporal variations in the data, business cycle effects and heterogeneity bias, which affect the causal ability of economic globalization. This study used global data of 141 countries to assess the effects of economic globalization on energy efficiency. Our identification strategies involved using more refined measures of economic globalization and energy efficiency, addressing infrequent temporal variations as well as business cycle effects and concerns of heterogeneity bias. Largely, economic globalization positively drives energy efficiency, but this effect suffers from upward bias without controls. We note that infrequent temporal variations in the data and business cycle effects and heterogeneity bias drive the result. Concerning the latter, the result has shown that economic globalization improves energy efficiency only in upper-middle and lower-middle income countries and not in high and lower-income countries. Our results raise serious caution about the causal abilities of existing studies. And we discuss the policy implications.

Average tail risk and aggregate stock returns

We investigate the role of the average risk across stocks in predicting subsequent market returns using measures of risk that capture the higher moments of the return distribution including variance, skewness and kurtosis, as well as measures of tail risk that combine these. We find that average tail risk has statistically and economically significant predictive ability for market returns, even after controlling for market tail risk, suggesting that average idiosyncratic tail risk contains information about future returns. Average tail risk dominates other measures of average risk that have been documented in the literature, such as variance and skewness. Our results are robust to the inclusion of control variables that capture business cycle effects, and to the use of different measures of tail risk.

Firm-level contributions to the R&D intensity distribution: evidence and policy implications

ABSTRACT This paper decomposes the Spanish aggregate R&D distribution to disentangle the contributions of R&D public financing, gazelle firms, and financial constraints. Applying the Chernozhukov, Fernández-Val and Melly (2013) distribution regression approach, we estimate the contributions of these components at each point of the distribution. The analysis is carried out for two periods, pre-crisis 2004–2008 and post-crisis 2009–2014. We thereby introduce a comparative perspective that allows us to consider possible business cycle effects. Our findings show that the main explanatory factors of the significant post-crisis drop in Spanish aggregate R&D are changes in the public financing scheme and the decreased contribution of gazelles. Our results provide a rigorous analysis of Spanish R&D, hint at a possible transmission channel for reduced business dynamism, and offer interesting insights for policymaking.

Human capital and the business cycle effects on the postgraduate wage premium

Postgraduate degree holders experience lower cyclical variation in real wages than those with undergraduate degrees. Moreover, postgraduate jobs require more specific human capital. Using an equilibrium search model with dynamic incentive contracts, this paper attributes the cyclicality of the postgraduate-undergraduate wage gap to the differences in specific capital. Greater specific capital leads to lower mobility, thereby improving risk-sharing between workers and firms. The estimates of the model reveal that specific capital can explain the differences both in labour turnover and in real wage cyclicality between education groups.

Steel manufacturing clusters in a hydrogen economy – Simulation of changes in location and vertical integration of steel production in Northwestern Europe

With the move to a hydrogen-based primary steel production envisioned for the near future in Europe, existing regional industrial clusters loose major assets. Such a restructuring of industries may result in a new geographical distribution of the steel industry and also to another quality of vertical integration at sites. Both implications could turn out as drivers or barriers to invest in new technologies and are thus important in respect to vertical integration of sites and to regional policy. This paper describes an approach to model production stock invest for the steel industries in North-Western Europe. Current spatial structures are reproduced with capacity, technical and energy efficiency data on the level of single facilities like blast furnaces. With the model developed both investments in specific technologies and at specific production sites can be modelled. The model is used to simulate different possible future scenarios. The case with a clear move to hydrogen-based production is compared to a reference scenario without technological shift. The scenarios show that existing trends like movement of production to the coast may be accelerated by the new technology but that sites in the hinterland can also adapt to a hydrogen economy. Possible effects of business cycles or a circular economy on regional value chains are explored with a Monte-Carlo analysis.