International evidence on business cycle magnitude dependence

TL;DR

This study investigates whether the likelihood of ending economic expansions and recessions depends on their size across 16 countries from 1881 to 2000, revealing different patterns for recessions and post-WWII expansions.

Contribution

It provides empirical evidence on magnitude dependence in business cycles using hazard models across a long historical period and multiple countries.

Findings

Recessions show positive magnitude dependence.

Expansions are generally magnitude independent, with negative dependence post-WWII.

Structural changes affect the dynamics of business cycle phases.

Abstract

Are expansions and recessions more likely to end as their magnitude increases? In this paper we apply parametric hazard models to investigate this issue in a sample of 16 countries from 1881 to 2000. For the total sample we find evidence of positive magnitude dependence for recessions, while for expansions we are not able to reject the null of magnitude independence. This last result is likely due to a structural change in the mechanism guiding expansions before and after the second World War. In particular, upturns show negative magnitude dependence in the post-World War II sub-sample, meaning that in this period expansions become less likely to end as their magnitude increases.