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Federal Reserve Bank of St. Louis
Working Papers
Business Cycles Across Space and Time
Neville Francis
Michael T. Owyang
Daniel Soques
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.


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Neville Francis & Michael T. Owyang & Daniel Soques, Business Cycles Across Space and Time, Federal Reserve Bank of St. Louis, Working Papers 2019-10, 22 Jan 2019.
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Keywords: Markov-switching; time-varying transition probabilities; cluster analysis
DOI: 10.20955/wp.2019.010
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