Phases Of Business Cycle Research Articles

Has the Accession of Croatia to the EU Affected Business Sentiment in Industry? Synthetic Control Method Approach

Some economic and political events determine the level and dynamics of real economic variables on one hand, and business sentiment as a "soft" variable with a good predictive power for those variables, on the other. In this paper, we observe the impact Croatia's accession to the European Union (EU) in 2013 had on the Industrial confidence indicator (ICI) as a measure of business sentiment in Croatia's industry. Entering the EU had a strong positive impact on the economies of countries that had joined the Union. Unlike other new EU member states, which entered the EU in an upward phase of the European business cycle, Croatia entered this community immediately after the stabilization of the European debt crisis and in a long period of recession. Using a novel application of the Synthetic Control Method (SCM) to the business survey (BS) data, the main hypothesis, that Croatia's accession to the EU had a strong positive impact on the ICI (which can be explained as euphoria), is confirmed. Conclusions derived from this research are a contribution to the improvement and popularization of BS and SCM.

Effectiveness of the Anti-Crisis Policy in the Period of COVID-19 Pandemic in the Road Transport Industry

Purpose: The purpose of the paper is to examine the effectiveness of the tools introduced as the Anti-Crisis Shield Acts, which have been announced by the government of Poland during the pandemic in the road transport industry. Design/Methodology/Approach: The contribution is based on a review of literature, preparing of an original questionnaire-based survey directed for road transport companies and estimating ordered multi-nominal logit, and binary logit model. Findings: Transport industry is particularly sensitive to the business cycle phases due to the fact that limitations in trade are very often the first sign of incoming recession. We found out that the government introduced the Anti-Crisis Shield Act aimed to preserve jobs was widely utilized by the transport industry. Practical Implications: The Polish government similar to other European authorities has introduced a programme to reduce losses in the economy caused by the pandemic. The program was intended to reduce negative short- term consequences of the crisis caused by the COVID-19. The transport enterprises widely used the offered aid although it was directed rather ex post (to reduce) than ex ante (to prevent). Originality/Value: The study is based on primary data obtained from road transport companies and related to the consequences of the COVID-19 pandemic for the road transport industry. The research is fairly up-to-date, since the survey was conducted in June-July, 2020. A logit model is applied to evaluate determinants of the wide use of the government aid by the enterprises useful for practitioners and analytics of the transport industry to forecast probability of economic performance of enterprises.

Development and Implementation of Alternative Concept for Expected and Unexpected Losses in Corporations

The study suggests alternative conception of expected and unexpected losses in corporations. Unlike the classical conception, it suggests backing up expected losses with risk capital, taking into account loss causes during different phases of business cycle. Whereas unexpected losses that are the source of uncertainty should be adjusted based on adapted VaR method tests, stress tests and limitations that include principles of dynamic back up allocations. That should ensure timely forecast of significant financial risks guaranteeing efficient development of risk profile of corporations, and in the end increasing potential for efficient control on financial risks. From the standpoint of further conception advancing, a method for determining unexpected VaR losses was developed and implemented; it is supported with special software dedicated to bankruptcy risk symptoms identification in corporations.

Business cycle duration dependence and foreign recessions

AbstractThis study revisits business cycle duration dependence in G7 countries by controlling for foreign recessions, defined as the number of other G7 countries in a recession. Estimates from regime switching logit models show that the monthly likelihood of ending an expansion roughly doubles for every extra G7 country in recession, but the end of foreign recessions do not affect the ending of recessions. They also show that recessions are duration dependent in all G7 countries, but expansions only in the United States and Germany. The economic importance of foreign recessions and duration in driving business cycle phase changes vary across countries.

Salary of the employees of textile industry of Yaroslavl Governorate in the early XX century

  This article considers the questions of labor compensation of the industrial workers in prerevolutionary Russia based on the materials of one of the largest textile factories – Yaroslavl Big Manufactory (YBM). Attention is focused on the dynamics of nominal and real salaries at different phases of business cycle, as well as the ratio of salaries between high- and low-paid groups of workers in the early XX century (depending on the level of qualification and gender affiliation). The research contains the archival materials preserved in the State Archive of Yaroslavl Oblast in the fund of the Yaroslavl Big Manufactory (F. 674), including personal records of the employees and payroll registers for the period from the end of the XIX – beginning of the XX centuries. The conclusion is made that during the period of economic depression until 1908, the nominal salary of YBM employees grew faster than during the industrial ramp-up of 1909 – 1913, which was justified by the policy of factory’s administration, which in 1905 – 1907 raised the prices in order to meet the demands of the strikers. At the time of economic depression, the gap in salaries of high- and low-paid categories of workers (by professional, gender, and age groups) was reduced. In 1909 – 1913, the previous level of salary differentiation gradually came back to the situation of the period of depression. The conducted research allows formulating the hypothesis that at the time of unfavorable economic conjuncture, the entrepreneurs were oriented towards reduction of salary differentiation by raising salaries of the low-paid categories to the level of higher-paid workers; while during the years of economic upswing, the level of salary differentiation was increasing again, which was justified by intention to improve labor motivation among most qualified workers.  

Practical Applications of Business Cycle–Related Timing of Alternative Risk Premia Strategies

Practical Applications In Business Cycle–Related Timing of Alternative Risk Premia Strategies, from the Spring 2020 issue of The Journal of Alternative Investments, Bernd Scherer and Matthias Apel relate how they developed a business cycle model to explore its predictive power in a tactical allocation framework. They created an aggregate of economic indicators that identifies economic regimes in order to determine the sensitivities of a host of risk premia strategies across various business cycle phases. Many of these sensitivities, measured as conditional Sharpe ratios, are statistically different from their unconditional, overall risk-adjusted returns. During each regime, a long–short tactical overlay strategy takes a long position in the four alternative risk premia strategies with the highest Sharpe ratios and shorts the four with the lowest. The authors show that the overlay strategy improves the performance of a risk-parity portfolio and provide evidence that the observed return patterns are not a beta-driven result. While their primary interest lies within a universe of investable alternative risk premia strategies, cross-validation tests also applied the model within three additional investment universes: global asset classes, smart betas, and Fama–French risk factors.

When is the Fiscal Multiplier High? A Comparison of Four Business Cycle Phases

We synthesize the recent, at times conflicting, empirical literature regarding whether fiscal policy is more effective during certain points in the business cycle. Evidence of state dependence in the multiplier depends critically on how the business cycle is defined. Estimates of the fiscal multiplier do not change when the unemployment rate is above or below its trend. However, we find that the multiplier is higher when the unemployment rate is increasing relative to when it is decreasing. This result holds using both a long time-series at the U.S. national level and for a panel of U.S. states.

ECONOMIC AND SOCIO-CULTURAL DRIVERS OF NECESSITY AND OPPORTUNITY ENTREPRENEURSHIP DEPENDING ON THE BUSINESS CYCLE PHASE

This paper offers an in-depth examination of the behavior of necessity- and opportunity driven entrepreneurship. First, it considers their relevance to total entrepreneurial activity. It then seeks to determine which socio-cultural and economic factors affect the two types of entrepreneurship, as well as their relative importance for a sample of 32 previously selected countries during a period of expansion (2001–2008) and of crisis and recovery (2009–2016). The analyzed factors include monetary and fiscal policy instruments (economic factors) and representative variables of governance and human capital (socio-cultural ones). The findings show that both necessity- and opportunity-driven entrepreneurship largely explain the behavior of total entrepreneurial activity. They moreover show that the explanatory factors of both kinds of entrepreneurship differ depending on the business cycle phase considered. These findings will be key to proposing efficient economic policy measures to promote entrepreneurial activity and, thus, economic growth in different economies around the world.

Predicting stock market returns in the US: evidence from an average correlation approach

PurposeThis study aims to draw on a less explored predictor – the average correlation of pairwise returns on industry portfolios – to predict stock market returns (SMRs) in the USA.Design/methodology/approachThis study uses the average correlation approach of Pollet and Wilson (2010) and predicts the SMRs in the USA. The model is estimated using monthly data for a long time horizon, from July 1963 to December 2018, for the portfolios comprising 48 Fama-French industries. The model is extended to examine the effects of a longer lag structure of one-month to four-month lags and to control for the effects of a number of variables – average variance (AV), cyclically adjusted price-to-earnings ratio (CAPE), term spread (TS), default spread (DS), risk-free rate returns (R_f) and lagged excess market returns (R_s).FindingsThe study finds that the two-month lagged average correlation of returns on individual industry portfolios, used individually and collectively with financial predictors and economic factors, predicts excess returns on the stock market in an effective manner.Research limitations/implicationsThe methodology and results are of interest to academics as they could further explore the use of average correlation to improve the predictive powers of their models.Practical implicationsMarket practitioners could include the average correlation in their asset pricing models to improve the predictions for the future trend in stock market returns. Investors could consider including average correlation in their forecasting models, along with the traditional financial ratios and economic indicators. They could adjust their expected returns to a lower level when the average correlation increases during a recession.Social implicationsThe finding that recession periods have effects on the SMRs would be useful for the policymakers. The understanding of the co-movement of returns on industry portfolios during a recession would be useful for the formulation of policies aimed at ensuring the stability of the financial markets.Originality/valueThe study contributes to the literature on three counts. First, the study uses industry portfolio returns – as compared to individual stock returns used in Pollet and Wilson (2010) – in constructing average correlation. When stock market becomes more volatile on returns, the individual stocks are more diverse on their performance; the comovement between individual stock returns might be dominated by the idiosyncratic component, which may not have any implications for future SMRs. Using the industry portfolio returns can potentially reduce such an effect by a large extent, and thus, can provide more reliable estimates. Second, the effects of business cycles could be better identified in a long sample period and through several sub-sample tests. This study uses a data set, which spans the period from July 1963 to December 2018. This long sample period covers multiple phases of business cycles. The daily data are used to compute the monthly and equally-weighted average correlation of returns on 48 Fama-French industry portfolios. Third, previous studies have often ignored the use of investors’ sentiments in their prediction models, while investors’ irrational decisions could have an important impact on expected returns (Huang et al., 2015). This study extends the analysis and incorporates investors’ sentiments in the model.

Modeling Repayment Behavior of Consumer Loan in Portfolio across Business Cycle: A Triplet Markov Model Approach

With a view to develop a more realistic model for credit risk analysis in consumer loan, our paper addresses the problem of how to incorporate business cycles into a repayment behavior model of consumer loan in portfolio. A particular Triplet Markov Model (TMM) is presented and introduced to describe the dynamic repayment behavior of consumers. The particular TMM can simultaneously capture the phases of business cycles, transition of systematic credit risk of a loan portfolio, and Markov repayment behavior of consumers. The corresponding Markov chain Monte Carlo algorithms of the particular TMM are also developed for estimating the model parameters. We show how the transition of consumers’ repayment states and systematic credit risk of a loan portfolio are affected by the phases of business cycles through simulations.

Wavelike Character of Pension Reforms. First-wave 1994–2008

The article puts forward the hypothesis about the wave nature of pension systems reforms since the early 1990 under the effect of demographic and economic factors. In response to the results of previous works on this subject and statistical analysis results, wave’s mechanism has been identified. Conditions for starting the wave of pension reforms established with long-term demographic trend in periods of tension (the higher growth rates of age dependency ratio and others). The start and dynamic of the wave are determined by macroeconomic shocks arise from decreasing phase of business-cycle. The growth phase of pension reforms are followed by the period of deceleration. There is a factor that slowdowns responses to macroeconomic shocks (the decisions about pension reforms are not accepted instantly). Pension system adjusts to new conditions until further tightening. Quantitative and quality analysis of pension reforms across countries would allow to test this hypothesis. To that end an appropriate instruments have been developed: the classifier of pension reform (67 items with scoring system to estimate the depth of the changes), evaluation system for economic factors influences via sensitive to pension systems indicators and associated macroeconomic shocks. A cross-section of 24 countries generates a mix of pension reforms for the period of 1994–2019, two waves of pension reforms (1990–2008 and 2009 – present) is revealed, the hypothesis of waves nature of pension reforms is confirmed. The heart of pension systems transformations in the first way is identified. These are lowering of government pensions obligations, shifting the risks from state to population with the introduction of DCschemes. The suggestions that the implementation of second pillar is positive only for countries with well-developed financial market. The research of second-wave of pension reforms and projection of the third way will be dealt with in the next article.

Firm ownership and size versus innovation activities over the business cycle: near-zero inertia as a sign of the transition from the fifth to the sixth Kondratieff wave

Research background: The innovation activity of Polish industrial processing enterprises is examined in a broader time context than typical business cycle frames, which makes it possible to look at the investigated problems from the perspective of Kondratieff waves.
 Purpose of the article: The aim of the research is to describe the combined effect of mutual interactions between the ownership and size of Polish industrial processing enterprises on the goals of innovative activity and their degree of importance for the further development of the innovativeness of those firms. These relations are examined in various phases of the business cycle. Additionally, taking secular changes into account made it possible to lend credence to the claim that the global financial crisis is a typical phenomenon for the breakthrough period between two Kondratieff waves.
 Methods: A characteristic feature of the applied method is the focus on the combined effect of the enterprise type and ownership structure on firms? innovation over three periods: prosperity 2004?2006, crisis 2008?2010 and recovery 2012?2014. As regards statistical techniques, the Pearson?s ?^2 independence test and correspondence analysis were applied. The results of the research are presented in a graphic form in three- and two-dimensional correspondence maps, which indicate the co-occurrence of (1) ownership sectors and enterprise types taken together, and (2) effects (goals) of the innovative activity of enterprises, together with the degree of their influence (importance) for further innovative activity. Mutual interactions between ownership sectors and enterprise types were visually analysed, indicating significant features of the triangles representing them.
 Findings & Value added: A significant combined effect of the ownership sectors and enterprise types on firms? innovative activity was found. There was a certain type of dynamic equilibrium between those variables, which changes depending on the business cycle phase. In the global financial crisis of 2008?2010, a surprising phenomenon was found, consisting of the growth of innovative activity in most enterprises as compared to the period of prosperity in 2004?2006. The enterprises achieved the goals assumed, and the degree of their importance proved the significant influence on further innovative activity of those firms. Additionally, it was demonstrated that in the period of recovery (2012?2014) mutual interactions between ownership and size eliminated the relationship between those variables and the goals of innovative activity, and eco-innovations proved to be directly subordinated to traditional types of innovations, mainly product and process innovations. Changes occurring in the last of the examined periods are related to the near-zero inertia of the entire industrial processing section, which allows to interpret the global financial crisis as a typical phenomenon for a breakthrough marking the end of one Kondratieff wave and the beginning of the next. Moreover, 2015 is identified as the year of breakthrough, ending the Fifth and beginning the Sixth Kondratieff Wave, which was related to the transition from the information and telecommunications revolution to the biomedical-hydrogen revolution. The calculations presented in this paper are consistent with those forecasts.

The influence of globalization processes on the innovative development of the food industry of Ukraine in the phases of business cycles

Aim. One of the important problems in the development of the food industry in Ukraine is the infl uence of globalization processes, accompanied by cyclical development of the economy. The cycles are manifested in periodic ups and downs of the business climate, taking into account the infl uence of various factors (climate change, risks in agricultural production, legislative changes, etc.), i.e. when the economy seeks to fi nd equilibrium. Therefore, the identifi cation of fl uctuations in economic activity and, accordingly, changes in market conditions that arise as a reaction to the action of well-defi ned, predictable factors of the market environment are relevant and necessary. The purpose of the article is to reveal the infl uence of globalization processes and economic cyclicality on the innovative development of the food industry in Ukraine, to identify the phases of business cycles, to determine the criteria for the effective functioning of individual food industry sectors during periods of crisis and depression in order to develop effective tools for leveling and smoothing their consequences at different levels of management. Methods. Based on the application of classical and modern methods for assessing economic cycles, we developed a methodological approach to justifying the phases of the business cycle and identifying the development specifi cities of individual sectors of the food industry of Ukraine (meat processing, milk processing, baking, sugar production) in these phases. In the authors’ algorithm, at the appropriate stages of the study, the following methods were applied: factor analysis  to calculate the indicator of the business climate; smoothing time series  to identify individual phases of the business cycle; average values of growth rates  to summarize the characteristics of the phases of the business cycle and identify the characteristics of the development of food industry sectors of Ukraine in these phases. The primary data for the calculations were the data of global and national statistics. Results. It has been established that the consequences of the impact of globalization on the development of the food industry of Ukraine since the beginning of the new millennium are: changes in the industrial structure; its formation under the infl uence of an external market, where raw materials and primary processing products are most in demand; accelerated growth in consumer prices for food products, which does not correlate with real incomes of the population; expanding the monopolization of food markets; the imbalance of supply and demand, which leads to differences in the development of economic phenomena, in particular  in the innovative development of the food industry, etc. The study showed that the development of individual sectors of the food industry is affected by the cyclical development of the national economy. The periods of the business cycle phases for the Ukrainian economy (from 2002 to mid-2019) and their impact on the activity of the food industry are determined. It was established that during this period the Ukrainian economy went through 4 business cycles with fi ve major downturns and peaks in economic activity. It was revealed that a sign of its development is the presence of separate business cycles in which there is no depression phase. Conclusions. The assessment of the intensity of the development of the food industry sectors during the phases of business cycles gives grounds for the justifi cation of their slower innovative development. The main reasons for this phenomenon in the food industry are as follows: imbalance in supply and demand for goods; low purchasing power of the population; investing signifi cant amounts of fi nances in increasing production volumes, and not in innovative development, ineffi cient pricing policy. The methodological approach proposed in the article, based on the identifi ed signs of the phases of the business cycle, makes it possible to justify the problem periods of the food industry in the short term, as current problems signifi cantly affect the implementation of long-term plans. This confi rms the feasibility of applying the proposed methodological approach in further research.

Unfolding the relationship between mortality, economic fluctuations, and health in Italy.

Despite the long-run strong negative association between economic development and mortality, their short-run relationship remains controversial. In the present work, we study co-movement between mortality growth (overall, gender- and cause-specific) and economic fluctuations in Italy over the period 1862-2013. To this aim, we use Johansen (Econometrica 59:1551-1580, 1991) procedure to jointly estimate the short- and long-run dynamics of the two variables, avoiding omitted variable bias in the cyclical co-movement extraction or spurious association attributable to trends. We also take into account possible asymmetric responses of mortality growth to shocks in GDP. We find that an increase of 1% in real GDP per capita induces a reduction in mortality rate of 0.27% for total population. Moreover, we observe that business cycle fluctuations do not affect mortality in the pre-wars era, where only the long run decreases matters driven by reduction in infections and accidents mortality. On the contrary, in the post-wars period, expansive phases of business cycle are associated with reduction in mortality growth and periods of recession generate an ever-deeper decrease. However, in this period, mortality for cancer is procyclical and significantly increasing in expansion: this reinforces the debate for controlling environmental factors.

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.

Two sides of the same union? Reviving the Optimum Currency Areas theory from the business cycle synchronisation perspective

ABSTRACTUnlike formally determined Maastricht convergence criteria for monetary union membership in Europe, we investigate the preparedness of the Central and Eastern European countries, using the business cycle synchronisation criterion primarily proposed by the Optimum Currency Areas theory. Applying the classical business cycle approach, we estimate the business cycles and measure their synchronisation with reference economies, with emphasis on their timing during the recent global crisis. In spite of identified medium-to-high level of synchronisation, our results reveal differences in the duration of business cycle phases, depth and timing compared to the euro area aggregate/Germany and the United States. These differences are associated with the character of small open economies and the country-specific economic (fiscal) policies of these former socialist countries.

Business cycles and earnings management strategies: a study in Brazilian public firms,

ABSTRACT This study contributes to the literature dealing with the influence of macroeconomic factors on accounting information quality, since it analyzes the earnings management strategies of firms, specifically identifying different discretionary behaviors among economic cycles: 1) different levels of earnings management through accruals between phases of the business cycle, and 2) the trade-off between earnings management through accruals and real earnings management. The results indicate that the accounting information reported should be analyzed with greater caution by its users, especially in periods of great economic oscillations, when managers can increase or reduce opportunistic behavior. The research population comprised non-financial companies with shares traded on the São Paulo Stock, Commodities, and Futures Exchange (BM&FBovespa) and the sample was composed of 247 firms per year, covering the period from 2000 to 2015 and totaling 2,501 observations. The phases of business cycles were used as a proxy for the economic environment and were based on Schumpeter's (1939) study, which divides an business cycle into four distinct phases: expansion, recession, contraction, and recovery. Discretionary accruals were estimated according to the Pae (2005) and Paulo (2007) models. Real earnings management was estimated as described by Roychowdhury (2006), using only the abnormal behavior of production costs and operational decisions. The results of this research show that earnings management strategies, using either accruals or real manipulation, as well as the choice between these strategies, are impacted by the economic environment. The evidence suggests that managers have different opportunistic behavior in each phase of the business cycle. Specifically, they increase the level of discretionary accruals in contractionary phases and reduce it during recoveries, while they manage earnings downwards via real manipulation in recessions and contractions.

The two-speed Europe in business cycle synchronization

This paper evaluates the consequences of the financial and sovereign debt crises on the evolution of the business cycle synchronization across all the Euro Area members. We take advantage of the dimension reduction properties of dynamic factor models to summarize a large dataset of macroeconomic indicators for the Euro Area countries. Then, we estimate latent state variables based on Markov-switching methodologies to obtain a time-varying measure of business cycle synchronization. The combination of these two techniques allows us to describe the evolution in the degree of coincidence of the business cycle phases along time for this set of countries. Our results suggest that there was a general decline in the degree of business cycle synchronization across the Euro Area countries following the financial and the sovereign debt crises. Although they have recovered the levels of business cycle synchronization exhibited before these events, there are significant differences across countries in the required time to recover those levels.

Revisiting the asymmetric effects of bank credit on the business cycle: A panel quantile regression approach

Regarding the co-movement between financial factors and the business cycle, we use the data of 18 countries from 1999 to 2016 and examine the asymmetric effects of bank credit on the business cycle by using the panel quantile regression. The empirical results suggest that bank credit is pro-cyclical and amplifies the business cycle and this effect is larger in the economic booms. In addition, the asymmetric effects of bank credit on the business cycle are robust in the different prediction horizons and for alternative financial factors, including M2 supply and stock price. This paper contributes to explore the distinct roles of bank credit on the economy in the different business cycle phases.

Regional Business Cycle Phases in Spain

We characterize regional business cycles for Spain using monthly Social Security affiliations. Based on a set of Markov-switching models, we find substantial synchronization of regional business cycles, which has increased since the Great Recession. We also find evidence of a regional leading and lagging performance that repeats itself across the different recessions. Typically, earlier signals of national recessions appear in the Islands and Valencia, and are propagated from the periphery to the center. Moreover, north-western regions tend to start the regional recoveries with a significant lag.