Changes In Business Cycle Research Articles

“Deaths of despair” over the business cycle: New estimates from a shift-share instrumental variables approach

This study presents new evidence of the effects of short-term economic fluctuations on suicide, fatal drug overdose, and alcohol-related mortality among working-age adults in the United States from 2003–2017. Using a shift-share instrumental variables approach, I find that a one percentage point increase in the aggregate employment rate decreases current-year non-drug suicides by 1.7 percent. These protective effects are concentrated among working-age men and likely reflect a combination of individual labor market experiences as well as the indirect effects of local economic growth. I find no consistent evidence that short-term business cycle changes affect drug or alcohol-related mortality. While the estimated protective effects are small relative to secular increases in suicide in recent decades, these findings are suggestive of important, short-term economic factors affecting specific causes of death and should be considered alongside the longer-term and multifaceted social, economic, and cultural determinants of America’s “despair” epidemic.

Asymmetric business cycle changes in US carbon emissions and oil market shocks

Previous research shows that, in the USA, the elasticity of carbon emissions with respect to GDP is greater when GDP declines than when GDP increases. Using monthly US data, we examine each individual recession since 1973. We find asymmetric changes in carbon emissions in the 1973–1975, 1980, 1990–1991, and 2020 recessions but not in the 1981–1982, 2001, or 2008–2009 recessions. The former four recessions are associated with negative oil market shocks. In the first three, there was a supply shock and in 2020, a demand shock. Changes in oil consumption that are not explained by changes in GDP explain these asymmetries. Furthermore, the asymmetries are due to emissions in the transport and industrial sectors, which are the main consumers of oil. We conclude that emissions behaved similarly in 2020 to the way they did in recessions associated with oil supply shocks, but, actually, this pattern is not inherent to the business cycle itself.

Organizational life-cycle analysis of corporate offending: insights into how changes in business cycles interact with regulatory oversight to shape compliance and violations

This paper showcases an organizational life-cycle analysis of corporate offending behavior in small businesses. It analyzes two small food and hospitality firms in China, drawing on deep ethnographic data collected during three years of fieldwork. The paper investigates these two businesses as they go through three phases: pre-existence, existence, and survival. The study shows that organizational life-course analysis is important for understanding the development and root causes of organizational offending. It finds that offending evolves alongside the development of the organization. It shows that an organizational life-cycle analysis should focus not just on changes in the corporation itself, but also on how the regulatory context changes over the course of the organization’s development and maturing. Stages in the business cycle coincide with changes in regulatory encounters, and this shapes how corporations view what regulators expect of them and the extent to which they can violate such expectations. This points to a broader form of life-course analysis. It urges the field to moves beyond an analysis of changes in the business to also study the how such changes coincide with changes in the regulatory frameworks that are supposed to monitor and reduce offending.

The repercussions of business cycles on renewable & non-renewable energy consumption structure: Evidence from OECD countries

The role of energy can't be underestimated for sustainable development. Both renewable and non-renewable energies have opposite effects on policy issues. However, a choice between renewable and non-renewable energies during different business cycle phases becomes important as changes in business cycles affect economic growth and energy demand. Therefore, the business cycles' impact on renewable and non-renewable energies at different stages in the business cycle is essential and strategic to be explored. In consideration of this present study examines the impact of business cycles (recessions and booms) on renewable and non-renewable energy consumption in the OECD states over 1996–2015. The effect of the business cycle on renewable and non-renewable energy consumption is heterogeneous during a recession and economic growth. Institutions and foreign direct investment are also included as moderating factors. Institutions and foreign direct investment are essential to lessen the negative impact of the business cycle on production cycles, thus the energy sector. Institutional quality is found to support increasing renewable energy consumption even in recessions. Foreign direct investment also effectively increases renewable energy consumption but shows different effects during the recession and boom periods. Therefore, foreign investment in research and development is required to develop green technologies that can serve as the principal source of power generation. Government subsidies and risk mitigation measures can help promote investment in renewable energy projects during a recession.

The Influence of Economic Policy Uncertainty and Business Cycles on Fine Wine Prices.

This study investigates the impact of both economic policy uncertainty (EPU) and business cycles on the fine wine market. We use a nonlinear autoregressive distributed lag model to measure the influence of these two variables on three major Liv-ex indices over the period 2005M01–2020M12. Our results are multiple. First, fine wine prices are relatively unaffected asymmetrically by EPU, while the economic cycle has a more pronounced asymmetric effect, especially in the short run. Second, uncertainty in Europe and the USA affect fine wine prices more than in China. Third, in the short term, fine wine prices react more strongly to changes in business cycles than to uncertainty. Finally, prices of the five first growths of Bordeaux are asymmetrically influenced by EPU, unlike of the rest of the most prestigious Bordeaux wines. The study also has implications for investment. We argue that a strong and professional strategic intelligence watch would help stakeholders in the secondary wine market to improve their returns, especially when European and US wines are involved. While short-runners should focus on information relative to changes in the business cycle, long-term investors would find it more interesting to closely monitor policy decisions liable to have long-term effects on wine prices (such as taxation, monetary measures…).

Macroeconomic impacts and transmission channels of an epidemic shock: evidence from the economic performance of China during the 2003 SARS epidemic

ABSTRACT This paper uses the 2003 severe acute respiratory syndrome (SARS) epidemic as a quasi-experiment to study the economic impact of epidemic shocks. It aims to answer the following two questions. 1) How does an epidemic affect various macroeconomic variable? 2) What are the transmission channels through which the epidemic shock affected firms? We build an epidemic shock macroeconomic model and use synthetic control method (SCM) and difference-in-differences (DID) estimator to estimate the impact of the 2003 SARS epidemic on the economic performance of China. We find that the SARS epidemic negatively affected China’s GDP growth rates and its levels of consumption, investment, and productivity. The lag time effect of SARS was very short because of the short duration of the outbreak and adequate market liquidity. We isolate and compare the effects of the SARS epidemic from the perspectives of changes in business cycles, labour supply shocks and external financing conditions on firms’ economic performance using firm-specific sensitivity estimates prior to the SARS epidemic. We find that the SARS epidemic had a larger negative impact on firms with higher sensitivity to business cycles and labour supply shocks.

Does Credit Supply Accelerate Business Cycle Changes in Korea?: Some New Evidence by Incorporating Regime Changes

This work empirically investigates how commercial banks' aggregate credit supply is associated with business cycle over different regimes of the Korean economy. Linear empirical models employed in most of previous studies are subject to a potential missapecification problem because it is well known that both real GDP and credit supply reveal different dynamic properties over different regimes. This work finds that credit supply has asymmetric effect on business cycle for expansion and contraction phases when the Smooth Transition Autoregressive Vector Error Correction Model (or STAR-VECM) is employed. Our empirical findings are as follows. Firstly, we find that credit supply has procyclical effect on real GDP in all phases. Secondly, the procyclical effects are significantly intensified especially in contractionary phases which indicates asymmetry of its effect. In sum, this result supports 'Credit Acceleration Hypothesis' of Bernanke et al. (1999). Lastly, we further find that real GDP has asymmetric effects on banks' credit supply with countercyclical effect on expansionary regimes.

Lean production in investment-construction industry. Adaptation to phases of customer business cycle

Lean production is being effectively used in many areas. Construction sector has its own conceptual differences such as necesssity of relocation of materials and production divisions between construction sites. Besides, every construction project is unique in a sense that even a standard project requires consideration of local conditions, and differs in terms of resources delivery, storage conditions, etc. Construction project involves many different parties (project designer, contractor, subcontractors, and suppliers), creating numerous management challenges. Lean production technology in this situation recommends the interpenetration of customer and contractor units. However, such a measure only partally increases flexibility of the construction industry, but does not eliminate the reasons for the descrepency between the periods of activity of customers and contractors. The article discusses ways to ensure maximum adaptability of the construction firm to the changes in customer business cycle. Construction companies are invited to create supersystem of common universal production, labor, and service units, which will significantly increase the flexibility of the construction industry. In addition, lean production technology should be complemented with tools for monitoring changes in the physical, communicaiton, technological and design activities of construction customers.

Is the ex‐ante equity risk premium always positive? Evidence from a new conditional expectations model

AbstractWe model the conditional risk premium by combining principal component analysis and a statistical learning technique, known as boosted regression trees. The method is validated through various out‐of‐sample tests. We apply the estimates to test the positivity restriction on the risk premium and find evidence that the risk premium is negative in periods of low corporate and government bond returns, high inflation and downward‐sloping term structure. These periods are linked with changes in business cycles; the states when theories predict the existence of negative risk premium. Based on the evidence, we reject the conditional capital asset pricing model and raise a question over the practice of imposing the positive risk premium constraint in predictive models.

The Investment Network, Sectoral Comovement, and the Changing U.S. Business Cycle

We argue that the input-output network of investment goods across sectors is an important propagation mechanism for understanding business cycles. First, we show that the empirical network is dominated by a few “investment hubs” that produce the majority of investment goods, are highly volatile, and are strongly correlated with the cycle. Second, we embed this network into a multisector model and show that shocks to investment hubs have large aggregate effects while shocks to non-hubs do not. Finally, we measure realized sector-level productivity shocks in the data, feed them into our model, and find that hub shocks account for a large and increasing share of aggregate fluctuations. This fact allows the model to match the decline in the cyclicality of labor productivity and other business cycle changes since the 1980s. Our model also implies that investment stimulus policies increase employment throughout the economy but have unequal effects across sectors.

Modeling time-variation over the business cycle (1960–2017): an international perspective

Abstract In this paper, I explore the changes in international business cycles with quarterly data for the eight largest advanced economies (US, UK, Germany, France, Italy, Spain, Japan, and Canada) since the 1960s. Using a time-varying parameter model with stochastic volatility for real GDP growth and inflation allows their dynamics to change over time, approximating nonlinearities in the data that otherwise would not be adequately accounted for with linear models [Granger, Clive W.J., Timo Teräsvirta, and Heather M. Anderson. 1991. “Modeling Nonlinearity over the Business Cycle.” In NBER book Business Cycles, Indicators and Forecasting (1993), edited by James H. Stock and Mark W. Watson, University of Chicago Press.; Granger, Clive W.J. 2008. “Non-Linear Models: Where Do We Go Next – Time Varying Parameter Models?” Studies in Nonlinear Dynamics and Econometrics 12 (3): 1–11.]. With that empirical model, I document a period of declining macro volatility since the 1980s, followed by increasing (and diverging) inflation volatility since the mid-1990s. I also find significant shifts in inflation persistence and cyclicality, as well as in macro synchronization and even forecastability. The 2008 global recession appears to have had an impact on some of this. I ground my empirical strategy on the reduced-form solution of the workhorse New Keynesian model and, motivated by theory, explore the relationship between greater trade openness (globalization) and the reported shifts in international business cycle. I show that globalization has sizeable (yet nonlinear) effects in the data consistent with the implications of the model – yet globalization’s contribution is not a foregone conclusion, depending crucially on more than the degree of openness of the international economy.

Which degrees do students prefer during recessions?

We examine how changes in the unemployment rate affect demand for tertiary education, demand for different fields of university study and degrees’ admission thresholds. We use panel data for applications submitted to every undergraduate program in Greece that span seven rounds of admission cohorts combined with a degree-specific job insecurity index, and time series on youth (ages 18–25) unemployment. We find that degree- and major-specific job insecurity turns applicants away from degrees and majors that are associated with poor employment prospects. Results indicate that the steep increase in the unemployment rate that started in 2009 is associated with an increase in the number of university applicants. The effect is heterogeneous across fields, with an increase in the demand for degrees in Psychology as well as for entrance to Naval, Police, and Military Academies, and a decrease in the demand for degrees in Business and Management. We also find that the business cycle changes degrees’ admission thresholds by affecting their popularity.

Aligning Compensation with Business Cycle: Exploring Economics of HR

In current times of globalization, changes in business cycle and economic variables are very rapid which result in change in organization strategy as a response to change in business environment. Understanding the behavior of costs and their relevance to specific decisions is of vital importance to organizations. One of the key factors in the organizational success is human factor and is also has cost associated in form of compensation. Market oriented economies cannot escape fluctuations in economic activity; therefore it is important for success of organization that their compensation and reward strategy be aligned with the changes in business cycle. The primary aim of the paper is to study and analyze the impact of business cycles on compensation in terms of re-formulating compensation strategies during different phases of economic cycles as combination of variable and fixed cost in compensation. In this paper attempt has also been made to identify the components of compensation during phases of economic cycles and thus creating a conceptual framework for economics of compensation.

Demand, credit and macroeconomic dynamics. A micro simulation model

We develop a micro simulation model for the macroeconomic business cycle. Our model is based on three main ideas. First, we want to specify how macroeconomic coordination is achieved without a dominating influence of price mechanisms. Second, we want to incorporate the stock-flow-consistent (SFC) approach that has become popular in post-Keynesian macroeconomics. Existing macroeconomic models often pay no attention to how short-run outcomes (in the form of surpluses or deficits on the account balances of individual agents, or groups of agents) accumulate into long-run debt. The SFC approach models such deficits and surpluses, and their accumulation, explicitly, and imposes a logic in which these long-run balances co-determine the macroeconomic coordination outcome. Third, we want to allow for bankruptcies as a major mechanism in the business cycle. In reality, bankruptcies are a way in which long-run balances get adjusted, but most often the SFC models do not allow bankruptcies as a way in which long-run balances adjust. In our model, bankruptcies arise because agents do not adapt their behavior quickly enough as debt, or assets, accumulate. This is parametrized, so that bankruptcies can disappear in the simulation runs, which enables us to compare the nature of business cycles with and without bankruptcies. Our results show a clear business cycle that is driven by accumulation of financial assets and the effects this has on the real economy. By changing some of the key parameters, we show how the nature of the business cycle changes as a result of changes in the assumed behavior of agents.

Modeling Time-Variation Over the Business Cycle (1960-2017): An International Perspective

In this paper, I explore the changes in international business cycles with quarterly data for the eight largest advanced economies (U.S., U.K., Germany, France, Italy, Spain, Japan, and Canada) since the 1960s. Using a time-varying parameter model with stochastic volatility for real GDP growth and inflation allows their dynamics to change over time, approximating nonlinearities in the data that otherwise would not be adequately accounted for with linear models (Granger et al. (1991), Granger (2008)). With that empirical model, I document a period of declining macro volatility since the 1980s, followed by increasing (and diverging) inflation volatility since the mid-1990s. I also find significant shifts in inflation persistence and cyclicality, as well as in macro synchronization and even forecastability. The 2008 global recession appears to have had an impact on some of this. I ground my empirical strategy on the reduced-form solution of the workhorse New Keynesian model and, motivated by theory, explore the relationship between greater trade openness (globalization) and the reported shifts in international business cycles. I show that globalization has sizeable (yet nonlinear) effects in the data consistent with the implications of the model?yet globalization?s contribution is not a foregone conclusion, depending crucially on more than the degree of openness of the international economy.

HOUSING MARKET CYCLES IN THE CONTEXT OF BUSINESS CYCLES

AbstractHousing markets as well as the overall economy develop unevenly. Business cycles are the result of the diverse dynamics of their development. The housing market, as one of the components of economic systems, is influenced by business cycles, at the same time affecting them as well. It should be noted, however, that the special nature of this market may determine a different course of housing market cycles in comparison with changes in business cycles. The aim of the paper is to identify similarities and differences in the shaping of the housing market cycle and the business cycle. The analysis will be conducted on the basis of experience from the Polish market and selected Western markets.

Do Business Cycles Have Long‐Term Impact for Particular Cohorts?

AbstractDo business cycle fluctuations and changes in employment produce cohorts with permanently different labour market attachment? Taking an explicit cohort perspective and based on Danish register data, we find noticeable age dependent persistence in employment rates at the cohort level. Younger workers tend to be more exposed to business cycle fluctuations than older workers, but importantly they recover more quickly than older workers for whom persistence is stronger. Moreover, following the employment trajectories of cohorts, no cohorts have been permanently ‘scarred’ in terms of employment due to a sequence of adverse shocks. Finally, an explicit account of overlapping cohorts is shown to affect assessments of persistence in aggregate employment rates.

Economic size of farms and adjustments of the total factor productivity to the business cycle in Polish agriculture

The article presents an approach to changes in the total factor productivity (TFP) which differs from that generally found in the literature. Changes are calculated in the real terms using the detailed input-output matrices for representative farms in Poland, for different economic size classes, in the years 2007–2013. Input-output matrices were used for the decomposition of the Hicks-Moorsteen TFP index. The goal is to evaluate changes in the real TFP in the downturn and recovery phases of the business cycle in agriculture. It was found that the reaction of TFP to business cycle changes on “small”, “medium” and even “large” family farms in Poland is diametrically opposite to that observed in the case of large-scale farms. More than 90% of farms in Poland (except for the largest) increase technical productivity in the conditions of the economic downturn and lower it in the conditions of the economic recovery. Such behaviour is pro-cyclic and irrational, alluding to the 17th-century King’s effect, which is vanishing in the agricultural systems of highly developed countries. The hypothesis is proposed that the size of the price expectation error which causes that effect is negatively correlated with the economic size of the farm, but at the same time it is proportional to the percentage of agricultural income obtained from subsidies and other payments under the SAPS system.

A Study on the Structural Changes in Business Cycles

A Study on the Structural Changes in Business Cycles

Общехозяйственная конъюнктура Еврозоны

The article deals with the main trends in the dynamics of the Eurozone’s general business situation (GBS) since its formation. The first (2008–2009) and the second (2012–2013) waves of the recession are compared. Average growth rates of key business cycle indicators are calculated. The periodization of the Eurozone business cycles as well as the identification of turning points made by the Centre for Economic Policy Research is critically assessed. The steady character of economic revival in 2014 is challenged. Gross fixed capital formation (GFCF) as a principal factor of GBS is assessed. GFCF rate as well as returns on GFCF are calculated and monitored. The classification of the Eurozone countries as per GDP volume and GDP per capita is provided. The mechanism of GBS formation is analyzed; the roles of the core countries (Germany, France, Italy, Spain) are highlighted. Also, the interaction of the block as a whole and its individual member countries is revealed. Deviations of individual countries dynamics from that of the Eurozone are identified and possible explanations for such phenomena are proposed. Then, the differences in GBS dynamics in the pre-crisis and post-crisis periods are analyzed in details. The correlation between the Eurozone and US business cycle is tracked. The desynchronization of the Eurozone members’ dynamics in 2008-2014 is highlighted. The connection between the level of economic development and the divergence in countries and Eurozone GBS dynamics is established. Business cycle phases and changes in key indicators among the Eurozone members are compared. The fragility of the future Eurozone GBS is forecasted. The author points at a dubious character of the allegations about significant improvement of GBS in the Eurozone and expects the continuation of its competitiveness’ crisis.