Working Paper

Business Cycles Across Space and Time

Abstract: We study the comovement of international business cycles in a time series clustering model with regime-switching. We extend the framework of Hamilton and Owyang (2012) to include time-varying transition probabilities to determine what drives similarities in business cycle turning points. We find four groups, or "clusters", of countries which experience idiosyncratic recessions relative to the global cycle. Additionally, we find the primary indicators of international recessions to be fluctuations in equity markets and geopolitical uncertainty. In out-of-sample forecasting exercises, we find that our model is an improvement over standard benchmark models for forecasting both aggregate output growth and country-level recessions.

Keywords: Markov-switching; time-varying transition probabilities; cluster analysis;

JEL Classification: C11; C32; E32; F44;

https://doi.org/10.20955/wp.2019.010

Status: Published in Journal of Money, Credit, and Banking

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2019-01-22

Number: 2019-10

Note: Publisher DOI: https://doi.org/10.1111/jmcb.12860

Related Works

• Working Paper Revision: Business Cycles Across Space and Time