Recession Episodes Research Articles

Works like a Sahm: Recession indicators and the Sahm rule

We analyse the use of the Sahm rule as a recession predictor/indicator. We use two approaches: (1) an empirical analysis of historic recession episodes; and (2) stochastic simulations in a VAR framework. We find that in both the Sahm rule is a poor predictor of future recessions. The VAR exercise suggests this is because of its focus on the unemployment rate, which misses non-labour market shocks. This analysis suggests the Sahm rule should be restricted to the purpose that its creator intended.

The Lake Effect: Lake Michigan, Landscape Evolution, and the Archaeological Record of the Chicago Region

Abstract Lake Michigan continues to have a major impact on the environment in the Chicago region, and changes in lake levels were a major driver of landscape evolution throughout the late Pleistocene and Holocene. Fluctuating lake levels reduced or increased the extent and character of terrestrial resources. The landscape has also been altered by erosional and aggradational processes from near-shore currents and wave action. Interpretation of archaeological site and settlement patterns in this region requires an understanding of the factors that have shaped and continue to shape this landscape. In the PaleoIndigenous and Archaic periods, foraging groups adapted to rapidly changing vegetation patterns and episodes of lake transgression and recession that opened or closed new habitats. In the Woodland and Upper Mississippian periods, lake levels stabilized, but the landscape continued to evolve, with erosion and deposition of sediments along Lake Michigan shorelines. Evidence for lake-level fluctuations over the last 12,000 years is available from a variety of data sets, including those for deep lacustrine sediments, ostracods, abandoned shorelines, and sand dunes. By synthesizing these data and utilizing GIS to reconstruct past lakeshores, we seek to better understand how people interacted with and adjusted to this dynamic landscape.

GDP responses to supply chain disruptions in a post-pandemic era: Combination of DL and ANN outputs based on Google Trends

With the recent Russian-Ukraine conflict, the frequency and intensity of disruptive shocks on major supply chains have risen, causing increasing food and energy security concerns for regulators. That is, the combination of newly available sophisticated deep learning tools with real-time series data may represent a fruitful policy direction because machines can identify patterns without being pre-conditioned calibration thanks to experimental data training. This paper employs Deep Learning (DL) and Artificial Neural Network (ANN) algorithms and aimed predicts GDP responses to supply chain disruptions, energy prices, economic policy uncertainty, and google trend in the US. Sampled data from 2008 to 2022 are monthly wrangled and embed different recession episodes connected to the subprime crisis of 2008, the COVID-19 pandemic, the recent invasion of Ukraine by Russia, and the current economic recession in the US. Both DL and ANN outputs empirically (and unanimously) demonstrated how sensitive monthly GDP variations are to dynamic changes in supply chain performances. Findings identify the substantial role of google trends in delivering a consistent fit to predicted GDP values, which has implications While a comparative discussion over the larger forecasting performance of DL compared to ANN experiments is offered, implications for global policy, decision-makers and firm managers are finally provided.

THE RELATIVE IMPACT OF MONETARY POLICY AND FISCAL POLICY ON GROSS DOMESTIC PRODUCT IN NIGERIA

The Nigerian economy has been frontally constrained by unsteady GDP growth rates with episodes of recession, and other unimpressive socio-political and economic indices over the past three decades. The situation has become aggravated by the identifiable cases of fiscal and monetary distortions, macroeconomic shocks and gaps in our budgetary provisions that are evident in recurring deficit budgets, fiscal crises, and unsustainable debt profile. The persistence of these problems has, unarguably, impacted negatively on the overall economic performance of Nigeria, and this begs the question of the potency of the use of monetary policy and fiscal policy in addressing our targeted macroeconomic problems. Spurred by the need to finding policy solutions to these problems, this study empirically examines the relative impact of fiscal policy and monetary policy in stimulating gross domestic product in Nigeria. The achieve the study objectives, annual time series secondary data spanning from 1983 to 2021 were empirically analyzed using Autoregressive Distributed Lag (ARDL) estimation after the unit root text revealed a mixed order of integration. The result of the long and short run dynamics revealed that Total Government Expenditure (TOGE) has a positive and statistically significant relationship with GDP in Nigeria. Also, Broad Money Supply (MPMS) and Open Market Operations (MPOM) have positive and statistically significant relationships with GDP within the study period. The study concludes that in the short and long run, monetary policy and fiscal policy play significant roles in stimulating GDP growth in Nigeria. However, in relative terms, fiscal policy is more potent than monetary policy in Nigeria within the review period. The study, therefore, recommends that for the attainment of macroeconomic goals and sustainable economic development effective coordination of monetary and fiscal policy tools should be encouraged for consolidated socio-political and economic gains.

Direct, geodetic and simulated mass balance studies of the Kolahoi Glacier in the Kashmir Himalaya, India

Knowledge of glacier mass balance (MB) is critical for understanding glacier-climate interactions and projecting future water availability in the data-scarce Himalayan region. In this study, we present the glaciological (2014–2019), geodetic (2000–2014) and reconstructed (1980–2019) MB of the Kolahoi Glacier (KG) in the Kashmir Himalaya, India. During the five-year observation period, the average in situ MB of the Glacier was −0.83 ± 0.34 m w.e. a−1, with significant inter-annual variation. The mean annual geodetic MB of the KG between 2000 and 2014 was −0.90 ± 0.09 m w.e. The reconstructed MB revealed four distinct glacier recession episodes since 1980. The Period I (1980–1990) showed a reduced mass loss of −0.27 ± 0.42 m w.e. a−1, with four years of positive mass balance. The Period II (2000–2010), on the other hand, experienced the highest mass loss of −1.18 m w.e. a−1 throughout the entire reconstructed MB series. All three MB measurement- in situ, geodetic and simulated agreed well. The MB showed an excellent correspondence with the observed temperature and precipitation. Analysis of the data revealed that the MB is sensitive to temperature at the rate of −0.65 m w.e. a−1 °C−1, but the sensitivity is only 0.13 m w.e. a−1 for a 10% change in precipitation. Furthermore, there is a good correlation between the simulated glacier mass loss and depleting glacier-melt in the autumn streamflow. The mass loss of the KG is expected to exacerbate in future as a result of the projected climate change, and thus further diminishing the streamflow of the transboundary rivers emanating from the region. It is envisaged that the findings will contribute to a better understanding of glacier-climate interactions and their implications for future water availability in the Kashmir Himalaya.

Text-Based Recession Probabilities

This paper proposes a new methodology based on textual analysis to forecast US recessions. Specifically, it presents an index in the spirit of Baker et al. (JAMA 131:1593–1636, 2016) and Caldara and Iacoviello (JAMA 1222, 2018) that tracks developments in US real activity. When used in a standard recession probability model, this index outperforms the yield curve-based forecast, a standard method to forecast recessions, at medium horizons, up to 8 months. Moreover, the index contains information not included in yield data, that are useful to understand recession episodes; when included as an additional control along with the slope of the yield curve, it improves forecasting accuracy by between 5% and 40%, depending on the horizon considered. These results are stable to a number of different robustness checks, including different estimation methods, different definitions of recession and controlling for asset purchases by major central banks. Our textual analysis data also improve the forecasting accuracy of several other popular leading indicators for the US business cycle.Supplementary InformationThe online version contains supplementary material available at 10.1057/s41308-022-00177-5.

Odgovor na izazove kovid 19 krize - neograničeni rast i moguće ekonomske politike

In the first, empirical part of the paper, we have dealt with the previous recession episodes in Serbia in the 15-year interval from 2006 to 2020 and the direct impact of the Covid-19 crisis. We have compared the long-term and short-term trends and one-off Covid-19 impacts on the real and monetary economy, financial sector, and the rest of the world. Key lessons drawn from the previous crises are highly relevant today. The second part of the paper is analytical. For that purpose, we have updated our DSGE model with the data until the last quarter of 2020 and simulated nine alternative scenarios of fiscal, monetary, and industrial policies over the next five years. They showed remarkable results in some sectors, but created imbalances in others. Focusing on GDP growth in the post-Covid-19 period is misleading since the economy will never be the same. There is a need to choose an optimal mix of conventional policy measures and an industrial policy based on digitalisation and IT. The current Government policy of a huge fiscal deficit and rising public debt exposes the country to unbearable risk in the future.

Text-Based Recession Probabilities

This paper proposes a new methodology based on textual analysis to forecast U.S. recessions. Specifically, the paper develops an index in the spirit of Baker et al. (2016) and Caldara and Iacoviello (2018) which tracks developments in U.S. real activity. When used in a standard recession probability model, the index outperforms the yield curve based forecast, a standard method to forecast recessions, at medium horizons, up to 8 months. Moreover, the index contains information not included in yield data that are useful to understand recession episodes. When included as an additional control to the slope of the yield curve, it improves the forecast accuracy by 5% to 30% depending on the horizon. These results are stable to a number of different robustness checks, including changes to the estimation method, the definition of recessions and controlling for asset purchases by major central banks. Yield and textual analysis data also outperform other popular leading indicators for the U.S. business cycle such as PMIs, consumers' surveys or employment data.

Private and public debt interlinkages in bad times

Drawing on a large sample of recession episodes, we document that those preceded by larger buildups in private debt tend to be followed by larger accumulations of public debt. Similarly to recessions preceded by a rapid run-up in public debt, these ex-post public debt buildups are associated with a more muted growth in government expenditures and a sharper rise in fiscal stress. The documented pattern becomes particularly intense in financial crises and emerges in both low and high public debt environments. These empirical regularities suggest that private sector indebtedness should be considered a relevant factor in the assessment of the soundness of the fiscal position.

A New Index of the Business Cycle

The authors introduce a new index of the business cycle that uses the Mahalanobis distance to measure the statistical similarity of current economic conditions to past episodes of recession and robust growth. Their index has several important features that distinguish it from the Conference Board’s leading, coincident, and lagging indicators. It is efficient because as a single index it conveys reliable information about the path of the business cycle. Their index gives an independent assessment of the state of the economy because it is constructed from variables that are different than those used by the NBER to identify recessions. It is strictly data driven; hence, it is unaffected by human bias or persuasion. It gives an objective assessment of the business cycle because it is expressed in units of statistical likelihood. And it explicitly accounts for the interaction, along with the level, of the economic variables from which it is constructed.

Dependence structure between business cycles and CO2 emissions in the U.S.: Evidence from the time-varying Markov-Switching Copula models

The relationship between CO2 emissions and economic growth is well-examined. However, there is a gap in the literature to examine the nexus by regime-switching models. For this purpose, this paper examines the interdependence relations between CO2 emissions and the industrial production index as a measure of business cycles at the monthly frequency in the United States. We use a new approach to modeling dependence between the underlying variables over time, combining the time-varying copula and the Markov switching models. We find that there is a significant dependence structure between business cycles and CO2 emissions, which has a regime-switching feature, for the period from January 1973 to January 2017. Specifically, during the recession episodes, we deduce that until 1982, the high dependence regime with the Gaussian copula is valid. Since the beginning of 1983, the low dependence structure regime becomes prominent.

The Euro-Area Output Gap through the Lens of a DSGE Model

The paper provides estimates of the euro-area output gap, based on a relatively standard medium scale DSGE model estimated recursively with Bayesian techniques over the period 1985-2016. The main findings can be summarized as follows. First, our measure of output gap identifies episodes of expansion and recession generally in line with the official business cycle dating of the CEPR. Second, unlike measures of output gap obtained by means of statistical filtering techniques, real-time DSGE-based estimates are remarkably stable and hence are less prone to ex-post revisions. According to our results, the euro-area output gap was -3.4% in 2016, more negative than assessed by most economic analysts and institutions (spanning a range between from 0 and to -2%), but arguably more consistent with the still weak dynamics of both labour costs and core inflation.

Pedogenic evidence of Urmia Lake's maximum expansion in the late Quaternary

The Urmia Lake recession, and the resulting increase in vast barren area around it, has been rapid in recent decades and thus has attracted attention of environmentalists and geoscientists alike. However, evidence for its different strandlines and the largest extension of the lake during the late Quaternary has not been reported yet. The principal goals of the current research were to figure out pedological evidence of its maximum expansion during the late Quaternary and mapping out the different strandlines along the western shores of Urmia Lake over time. Thirty-two soil pedons at different landscape positions, geomorphic surfaces and distances from Urmia Lake were studied during autumn in 2013 and 2014. Micromorphological and mineralogical studies were performed for some diagnostic horizons. Results showed along the transect under study three different entities diagnostic of the lake's history (1) lithological discontinuities, (2) saline lacustrine sediments, (3) buried soils. However, almost 2 km from the closest pedon to the lake, no evidence of saline playa sediments were detected. Based on previous chronology results from Urmia Lake, which indicated high lake levels with very low salinity since about 180 ky BP, the sediments of this part of the study area were considered to have been deposited at the same period of time, indicating a maximum expansion of Urmia Lake during the late Quaternary. The current results demonstrate that soil pedons which were situated at various distances from Urmia Lake denote different stages of the lacustrine evolution. Along with the distance from the lake the development of soils increases. Due to a longer and more intensive impact of pedogenic processes on the topstratum the overall soil system becomes more “mature”. The study of buried soils and their comparison to upper non-buried soils revealed that in some cases, the buried soils were more evolved than their upper soils or vice versa. Through these observations, the periods of exposure to soil-forming processes after each sedimentation period was detected and schematic diagrams illustrating periods of highstands and lowstands (recessions) of Urmia Lake were reconstructed. This study demonstrates that even though multiple episodes of lake recession were apparent, the level of Urmia Lake increased during hydroclimatic events conducive to lake expansion, which affected the soil evolution due to several fluctuations during the late Quaternary.

Forecasting performance of private sector’s unemployment forecasts in advanced economies

This paper provides a full characterization of unemployment rate forecasts using the mean values from Consensus Economics for a sample of nine advanced economies between 1989 and 2012. It also assesses the performance of unemployment rate forecasts around business cycles’ turning points. We find evidence for biasedness, inefficiency or information rigidities and lack of accuracy of unemployment rate forecasts and the distribution of projection errors appears to be slightly twisted to over-prediction (which decreases during recession episodes). Additionally, there is a sense of ‘pessimism’ among forecasters during recovery periods.

On the rationality and efficiency of inflation forecasts: Evidence from advanced and emerging market economies

This paper provides a full characterization of inflation rate forecasts using the mean values from Consensus Economics for a sample of 78 advanced and emerging economies between 1989 and 2014. It also assesses the performance of inflation rate forecasts around business cycles’ turning points. As expected, that inflation forecasts start to mirror the actual data as the forecast horizon draws to a close, particularly in advanced economies. The mean forecast error is positive and larger than one point when we pool all countries, but this masks inter-group differences. Moreover, we find evidence for biasedness, inefficiency or information rigidities, with a clear tendency for “forecast smoothing”. Accounting for cross-country informational linkages is important: forecasters fail to adjust their inflation forecasts quick enough in response to domestic news and news from abroad. Finally, during recession episodes forecasts generally appear to be inefficient. The same holds true for recoveries.

On the link between the US economic policy uncertainty and exchange rates

Employing dynamic conditional correlation GARCH (DCC-GARCH) model, this paper analyzes spillover effects of the US economic policy uncertainty shock on real effective exchange rates with the data from January 2000 to December 2014. We find that the correlations between the US EPU and the returns of the high-yielding currencies are consistently negative throughout the sample period, while the correlation between the US EPU and the returns of Japanese yen is consistently positive. Moreover, we find that the correlations tend to be intensified during two post-2000 recession episodes.

Reallocation effects of recessions and financial crises: an industry-level analysis

AbstractWe characterize the behavior of disaggregate manufacturing sectors for a large set of developed and emerging markets around recession dates. We uncover some relevant stylized facts. The dispersion in value added (VA) growth rates in developed economies is counter-cyclical, whereas for emerging countries it is pro-cyclical. Recoveries are more productivity-driven in developed countries as opposed to employment-driven for emerging markets. Around recession episodes sectoral-level misallocation of resources does not significantly change in developed economies, whereas it increases in emerging economies during financial crises. Therefore, there is no evidence that recessions improve the allocation of resources across industries.

Euro Area Business Cycles in Turbulent Times: Convergence or Decoupling?

We study the business cycles properties of the four largest European economies in the wake of the recent recession episodes. The analysis is based on the factors estimated from a multi-country and multi-sector data rich environment. We measure alikeness of business cycles by studying the synchronization of up and down phases, the convergence properties of country fluctuations towards the Euro Area cycles and the contribution of the Euro Area factor to national GDPs volatilities. While the economic fluctuations of the four Euro Area member states were similar before the global financial turmoil, we gather compelling evidence of an asymmetric behavior of Spanish fluctuations relative to the Euro Area one.

Financial crisis, US unconventional monetary policy and international spillovers

We study the impact of US quantitative easing (QE) on both the emerging and advanced economies, estimating a global vector error-correction model (GVECM). We focus on the effects of reductions in the US term and corporate spreads. The estimated effects of QE are sizeable and vary across economies. First, we find the QE impact from reducing the US corporate spread to be more important than that from lowering the US term spread, consistent with Blinder's (2012) argument. Second, counterfactual exercises suggest that successive US QE measures might have prevented episodes of prolonged recession and deflation in the advanced economies. Third, the estimated effects on the emerging economies are diverse but generally larger than those found for the United States and other advanced economies. The estimates suggest that US monetary policy spillovers contributed to the overheating in Brazil, China and some other emerging economies in 2010 and 2011, but supported their respective recoveries in 2009 and 2012. These heterogeneous effects point to unevenly distributed benefits and costs of cross-border monetary policy spillovers.

Euro Area business cycles in turbulent times: convergence or decoupling?

We study the business cycle properties of the four largest European economies in the wake of the recent recession episodes. The analysis is based on the factors estimated from a multi-country and multi-sector data-rich environment. We measure alikeness of business cycles by studying the synchronization of up and down phases, the convergence properties of country fluctuations towards the Euro Area (EA) cycles and the contribution of the EA factor to national GDP volatilities. While the economic fluctuations of the four EA member states were similar before the global financial turmoil, we gather compelling evidence of an asymmetric behaviour of Spanish fluctuations relative to the EA one.