Positive Duration Dependence Research Articles

Export Cutoff Productivity, Uncertainty and Duration of Waiting for Exporting

Abstract Using China’s transaction-level trade data and firm-level production data during 2000–2006, this study first estimates the duration of Chinese industrial enterprises’ waiting for exporting. The results show that the average duration of waiting for exporting is 4.7 years and the median is 5 years. Besides, the hazard rate of export entry has the prominent positive duration dependence. Then, this study uses Cox proportional hazard model to analyse the impact of export cutoff productivity on the duration of waiting for exporting. The result indicates that the rise in the productivity threshold will significantly prolong the duration of waiting for exporting, and this conclusion is supported by a variety of robustness tests. In addition, the estimation result of hazard ratio shows that every 1% increase in productivity threshold will lead to a 0.1261% decrease in hazard rate of enterprises’ export entry. Moreover, the heterogeneity test indicates that the effect of export cutoff productivity on duration of enterprises’ waiting for exporting has the significant ownership and industry heterogeneity, but does not have the destination heterogeneity. Further, this study finds that China’s accession to the World Trade Organisation helps to weaken the threshold effect of export cutoff productivity on the duration of Chinese enterprises’ waiting for exporting, while the rise in the uncertainty will aggravate this effect. This study indicates that it should be the focus of government to actively promote the establishment of bilateral and multilateral free trade zones, to create a stable business environment for enterprises and to reduce the market uncertainty.

Recessions and recoveries in Central African countries: Lessons from the past

AbstractThe Great Financial Crisis and the COVID‐19 pandemic have raised concerns about business cycles. In this paper, we examine the dynamics of past business cycles in CAEMC economies to infer the shapes of recessions and subsequent recoveries. We use annual GDP data covering the period 1960–2020 and non‐parametric approach. The main results are fourfold. First, recessions are, on average, long with a positive duration dependence relationship and the strength of recoveries is independent of the duration and the depth of the associated recessions. Second, recessions and recoveries are not all alike, meaning that history cannot be used as a guide for forecasting issue. Third, nearly 45% of the recessions and subsequent recoveries are V‐shaped, and the L, U and W patterns appear when governments are heavily indebted. Fourth, a regional cycle sometimes emerges. The results suggest a strengthening of the capacities of CAEMC states and a resilient supply chain management.

Revisiting the duration dependence in the US stock market cycles

ABSTRACT There is a big controversy among both investment professionals and academics regarding how the termination probability of a market state depends on its age. Using more than two centuries of data on the broad US stock market index, we revisit the duration dependence in bull and bear markets. Our results suggest that the duration dependence for both bull and bear markets is a nonlinear function of the state age. It appears that the duration dependence in bear markets is strictly positive. For 93% of the bull markets, the duration dependence is also positive. Only about 7% of the bull markets, those with the longest durations, do not exhibit positive duration dependence. We also compare a few selected theoretical distributions on their ability to describe the duration dependence in bull and bear markets. Our results advocate that the gamma distribution most often provides the best fit for both the survivor and hazard functions of bull and bear markets. However, our results reveal that none of the selected distributions accurately describes the right tail of the hazard functions.

The duration of the school-to-work transition in Italy and in other European countries: a flexible baseline hazard interpretation

PurposeThe Italian school-to-work transition (STWT) is astonishingly slow and long in comparison to the other EU countries. We analyze its determinants comparing the Italian case with Austria, Poland and the UK.Design/methodology/approachThe analysis is based on a Cox survival model with proportional hazard. The smoothed hazard estimates allow us to identify the nonlinear path of the hazard function.FindingsThe authors reckon that the actual length of the transition to a stable job is around 30 months in Italy. Conversely, it is less than one year in the other countries. Women are particularly penalized, despite being on average more educated than men. Tertiary or vocational education at high secondary school strongly increases the hazard rate to a regular job. The smoothed hazard estimates suggest positive duration dependence at the beginning of the transition and slightly negative thereafter.Practical implicationsStimulating economic growth and investing in education and training are important pre-conditions for shortening the transition.Originality/valueDespite the duration of the STWT is one of the most important indicators to measure the efficiency of the STWT, it is not easy to measure. The authors build on their previous research work on this topic, but relaxing the assumption of a monotonic hazard rate and using the flexible baseline hazard approach to test for the existence of nonlinear duration dependence. Furthermore, they extend the analysis by including student-workers who attended a vocational path of education, in order to detect its effectiveness in allowing young people finding a job sooner.

The creation and resolution of discrepancies between preferred and actual working hours over the life course

ABSTRACT This article contributes to the analysis of working hour discrepancies, i.e., under- and overemployment, by exploring how they emerge and resolve with special consideration of the household context. It uses a rich longitudinal data set, the German Socio-economic Panel, for a discrete duration analysis controlling for unobserved heterogeneity. We focus on the most relevant household and job characteristics. Findings suggest that job autonomy plays a crucial role in the creation and resolution of discrepancies. We especially contribute to previous studies by also examining path dependence and find that both the creation and resolution of discrepancies are characterized by positive duration dependence but by negative occurrence dependence.

Some young people have all the luck! The duration dependence of the school-to-work transition in Europe

This paper provides sound, comparative empirical evidence on the duration of the school-to-work-transition (STWT) across 14 European countries using information available in the EU-SILC database. We define the duration of the STWT as the time needed for young people to secure their first regular job (at least six months) after completing their studies. We highlight the existence of dramatic inequality both across and within countries, namely by education level. The duration ranges on average from 13 (UK) to 34 months (Italy) and the gap still remains after 10 years. We then study the determinants of the duration by means of parametric survival models, with the distribution of hazard rates for finding a regular job being proxied by a Weibull distribution, which reveals the best fit based on a number of statistical tests. We test for omitted heterogeneity by means of the frailty survival model and find consistent evidence of positive duration dependence, suggesting that, as times passes, young people increase their hazard rate for finding a regular job as soon as they gain work experience and accumulate work-related competences.

Global factors, uncertainty, weather conditions and energy prices: On the drivers of the duration of commodity price cycle phases

We investigate the role of global factors in explaining the length of commodity price cycle phases, using a continuous-time Weibull duration model and data for a panel of 33 countries over the period 1980Q1–2015Q4. We find evidence of increasing (constant) positive duration dependence for commodity price booms and busts (normal time spells). Global macroeconomic conditions - in particular, inflation, economic policy uncertainty and monetary policy actions - significantly affect the duration of all commodity price cycle phases. Global environmental conditions also impact the duration of commodity price booms, with a rise in average temperature (rainfall) increasing (reducing) their lengths. A larger number of military conflicts around the globe is associated with shorter booms and busts. Finally, we find that higher oil prices are linked with longer booms and shorter busts. • We investigate how global factors affect the length of commodity price cycle phases. • Global macroeconomic conditions significantly affect the duration of all phases. • Higher average temperature (rainfall) also increases (reduces) booms' duration. • A rise in military conflicts around the globe is linked with shorter booms/busts. • Higher oil prices are associated with longer (shorter) booms (busts).

HOW LONG DO HOUSING CYCLES LAST? A DURATION ANALYSIS FOR EMERGING ECONOMIES

In this paper, I empirically study the amplitudes and durations of housing cycles in selected emerging countries. Using the Harding and Pagan (2002) approach, I identify peaks and troughs of house prices for 10 countries. I find that, on average, housing expansions last longer and have greater amplitudes than housing contractions. I, then, estimate a discrete time survival model of housing expansions and contractions. I show that both contractions and expansions have positive duration dependence. I find that inflation and economic growth are useful predictors for the end of periods of expansions and contractions.

Revisiting the Duration Dependence in the US Stock Market Cycles

There is a big controversy among both investment professionals and academics regarding the question of how the probability that a bull or bear market terminates depends on its age. Using more than two centuries of data on the broad US stock market index, in this paper we revisit the duration dependence in bull and bear markets. We find that for both bull and bear markets the duration dependence is a nonlinear function of the state age. Our results suggest that the duration dependence in bear markets is strictly positive. For 93% of bull markets the duration dependence is also positive. Only about 7% of the bull markets, those with the longest durations, do not exhibit positive duration dependence. We also compare a few selected theoretical distributions in describing the duration dependence in bull and bear markets. We find that the gamma distribution most often provides the best fit to both the survivor and hazard functions of bull and bear markets. However, our results reveal that none of the selected distributions correctly describes the right tail of the hazard functions.

The collapse of credit booms: a competing risks analysis

PurposeThis paper analyses the collapse of credit booms into soft landings or systemic banking crises.Design/methodology/approachA discrete-time competing risks duration model is employed to disentangle the factors behind the length of benign and harmful credit booms.FindingsThe results show that economic growth and monetary authorities play the major role in explaining the differences in the length and outcome of credit booms. Moreover, both types of credit expansions display positive duration dependence, i.e. both are more likely to end as they grow older, but hard landing credit booms have proven to be longer than those that land softly.Originality/valueThis paper contributes to our understanding of what affects the length of credit booms and why some end up creating havoc and others do not. In particular, it calls the attention to the important role that Central Bank independence plays regarding credit booms length and outcome.

Stuck at a Crossroads? The Duration of the Italian School-to-Work Transition

Purpose – There is a long period from completing studies to finding a permanent or temporary (but at least satisfactory) job in all European countries, especially in Mediterranean countries, including Italy. This paper aims to study the determinants of this duration and measure them, for the first time in a systematic way, in the case of Italy. Design/methodology/approach – This paper provides several measures of duration, including education level and other criteria. Furthermore, it attempts to identify the main determinants of the long Italian transition, both at a macroeconomic and an individual level. It tests for omitted heterogeneity of those who are stuck at this important crossroads in their life within the context of parametric survival models. Findings – The average duration of the school-to-work transition for young people aged 18–34 years was 2.88 years (or 34.56 months) in 2017. A shorter duration was found for the highly educated; they found a job on average 46 months earlier than those with compulsory education. At a macroeconomic level, the duration over the years 2004–2017 was inversely related to spending in the labour market policy and in education, GDP growth, and the degree of trade-union density; however, it was directly related to the proportion of temporary contracts. At the individual level, being a woman, a migrant, or living in a densely populated area in the South are the risk factors for remaining stuck in the transition. After correcting for omitted heterogeneity, there is clear evidence of positive duration dependence. Practical implications – Positive duration dependence suggests that focusing on education and labour policy, rather than labour flexibility, is the best way to smooth the transition. Originality – This study develops our understanding of the Italian STWT regime by providing new and detailed evidence of its duration and by studying its determinants.

A competing risks tale on successful and unsuccessful fiscal consolidations

This paper analyses the transitions out of fiscal consolidations using annual data for 17 industrial countries over the period 1975-2013 and applying a discrete-time competing risks duration model. Our approach allows us to distinguish the factors behind a successful or an unsuccessful end of fiscal consolidation episodes. The results show that economic and political factors, the size and typology of fiscal adjustments and the occurrence of crises explain the differences in the length and the success/failure of fiscal consolidations. Moreover, while fiscal adjustment programmes that end successfully display positive duration dependence, those that end in an unsuccessful manner are not duration dependent.

Duration Dependence, Monetary Policy Asymmetries, and the Business Cycle

We produce business cycle chronologies for U.S. states and evaluate the factors that change the probability of moving from one phase to another. We find strong evidence for positive duration dependence in all business cycle phases but find that the effect is modest relative to other state- and national-level factors. Monetary policy shocks also have a strong influence on the transition probabilities in a highly asymmetric way. The effect of policy shocks depends on the current state of the cycle as well as the sign and size of the shock.

On the duration of sovereign ratings cycle phases

• We analyze the drivers of sovereign rating phases via discrete-time Weibull models. • For speculative-rated sovereigns, reputation build-up as good borrowers is gradual. • The reputation of investment-grade sovereigns remains unchanged as time passes. • The length of both phases significantly depends on the country's economic conditions. • Better governance quality helps to reduce the duration of speculative-grade phases. Using long-term sovereign ratings data for a panel of 130 countries over the last three decades, we investigate the duration and determinants of sovereign rating phases through the lens of discrete-time Weibull models. We find that the likelihood of the end of the ‘speculative-grade’ phase increases as time goes by (i.e. there is positive duration dependence), but the ‘investment-grade’ phase is not duration dependent. Thus, for sovereigns rated as speculative, the build-up of reputation as good borrowers is a gradual process, whereas the reputation of investment-grade sovereigns solidifies and remains unchanged as time passes. However, the length of both phases significantly depends on the country's economic conditions. In particular, lower inflation, stronger growth and sounder fiscal policies shorten (prolong) the speculative- (investment-) grade phase. In addition, better governance quality helps to reduce the duration of speculative-grade phases.

The Benevolence of Time, Sound Macroeconomic Environment and Governance Quality on the Duration of Sovereign Ratings Phases

Using long-term sovereign ratings data for a panel of 130 countries over the last three decades, we rely on discrete-time Weibull models to investigate the duration and determinants of sovereign ratings phases. We find that the likelihood of the end of the 'speculative-grade' phase increases as time goes by (i.e. positive duration dependence), but the 'investment-grade' phase is not duration dependent. Thus, for sovereigns rated as speculative, the build-up of reputation as good borrowers is a gradual process, whereas the reputation of investment-grade sovereigns solidifies and remains unchanged as time passes. However, the length of both phases has proven to be significantly dependent on the country's economic conditions and the quality of governance. In particular, lower inflation, better economic performance and sounder fiscal policies shorten (prolong) the speculative- (investment-) grade phase. In addition, a better perception of the quality of public services and the ability of the government to formulate and implement sound policies and regulations help to reduce the duration of speculative-grade phases.

A journey home: What drives how long people are homeless?

This paper uses survival analysis to model exits from two alternative forms of homelessness: sleeping on the streets (‘literal homelessness’) and not having a home of one's own (‘housing insecurity’). We are unique in being able to account for time-invariant, unobserved heterogeneity. Like previous researchers, we find results consistent with negative duration dependence in models which ignore unobserved heterogeneity. However, controlling for unobserved heterogeneity, we find that duration dependence has an inverted U-shape with exit rates initially increasing (indicating positive duration dependence) and then falling. Exit rates out of both literal homelessness and housing insecurity fall with age. Women are more likely than men to exit housing insecurity for a home of their own, but are less likely to exit literal homelessness. Persons with dependent children have higher exit rates. Finally, education seems to protect people from longer periods of housing insecurity.

Booms, Busts, and Normal Times in the Housing Market

We assess the existence of duration dependence in the likelihood of an end in housing booms, busts, and normal times. Using data for 20 industrial countries and a continuous-time Weibull duration model, we find evidence of positive duration dependence suggesting that housing market cycles have become longer over the last decades. Then, we extend the baseline Weibull model and allow for the presence of a change-point in the duration dependence parameter. We show that positive duration dependence is present in booms and busts that last less than 26 quarters, but that does not seem to be the case for longer phases of the housing market cycle. For normal times, no evidence of change-points is found. Finally, the empirical findings uncover positive duration dependence in housing market booms of European and non-European countries and housing busts of European countries. In addition, they reveal that while housing booms have similar length in European and non-European countries, housing busts are typically shorter in European countries.

The duration analysis of structural breaks: is stability destabilizing?

This article investigates how the duration of a regime (i.e., the length of stability) affects the likelihood of a permanent structural break by devising the duration dependence in structural break method, which combines a structural break test and a duration dependence test. First, the locations of structural breaks are identified by Bai and Perron’s (1998) method. Then, it is estimated how a hazard rate changes in duration between structural breaks by parametric duration analysis using the Weibull and the log-logistic hazard functions.This study reveals the evidence of positive duration dependence, that is, stability is destabilizing, in 13 out of 27 international stock indices and the pooled data. In other words, as one regime continues over time with unchanged parameter values, a new structural break is more likely to occur. This method discloses a lower degree of duration dependence than the duration-dependence Markov-switching model (Durland and McCurdy, 1994) that considers temporary switches between a limited number of regimes. Also, some new patterns are emerged, e.g., more predominant positive duration dependence in bear markets, the secondary stock exchanges of a country and developing countries.

A Journey Home: What Drives How Long People Are Homeless?

This paper uses survival analysis to model exits over time from two alternative notions of homelessness. We are unique in being able to account for time-invariant, unobserved heterogeneity. We find that duration dependence has an inverted U-shape with exit rates initially increasing (indicating positive duration dependence) and then falling. Like previous researchers, we find results consistent with negative duration dependence in models which ignore unobserved heterogeneity. Exit rates out of homelessness fall with age and with the education level of mothers. Women are more likely than men to exit homelessness when it is broadly conceived, but appear to be less likely to exit when it is narrowly defined. Finally, higher paternal education and exemptions from welfare-related activity requirements due to either mental or physical health conditions are all associated with higher exit rates.

The Portuguese business cycle: chronology and duration dependence

This paper tries to identify a chronology for the Portuguese business cycle and test for the presence of duration dependence in the respective phases of expansion and contraction. A duration-dependent Markov-switching vector autoregressive model is employed in that task. This model is estimated over year-on-year growth rates of a set of relevant economic indicators, namely industrial production, a composite leading indicator and, additionally, civilian employment. The estimated specifications allow us to identify four main periods of contraction during the last three decades and some evidence of positive duration dependence in contractions, but not in expansions, especially when employment is added to the model.