Can sticky consumption cause business cycles?

Sticky aggregate consumption is a demonstrable phenomenon in economies throughout the world, but to our knowledge it has not yet been incorporated into capital structure macroeconomics. Doing so suggests an explanation for business cycles. On the heels of a technological advance, sticky consumption facilitates increased savings and lower real interest rates. These lower rates lead to accelerating elongations in the capital structure. Even though such elongations facilitate more rapid economic growth, if duplicative overinvestment in research and development occurs, economic contraction will follow the exposure of such error.     

Political cycles in Greece’s municipal employment

We consider the politically motivated fluctuations in Greece’s municipal employment, constructing a data-set from primary data and focusing on the composition of municipal employment in terms of employment relationship forms. Our analysis produces strong evidence of pre-electoral manipulation through increases in the number of contract employees. Considering a number of control variables and robustness checks does not affect the key results. Such variables include whether mayors run for reelection, incumbents’ political alignment with central government, partisan shifts, general elections, mayors’ turnover rate, and timing patterns. Our evidence provides insights into Greece’s political economy in the run-up to the current economic crisis.     

Is pharmaceutical expenditure related to the business cycles?

Recent research is focused on the study of health care expenditure and fiscal sustainability. In order to facilitate the understanding of this issue, we centre our interest on the Spanish pharmaceutical expenditure. Specifically, using data for the period 1995–2012, in the article we analyse if economic cycles affect pharmaceutical expenditures. Our results support that there is a positive relationship between pharmaceutical expenditure and economic development. Therefore, we conclude that pharmaceutical expenditures are pro cyclical over the last years.     

Do national business cycles have an international origin?

This paper analyses a set of output data for 113 countries and identifies common sources of fluctuations, to estimate a world business cycle. We also analyze the multiplier effects of worldwide or global shocks and their implications for the persistence and amplitude of cyclical fluctuations. We find that a higher relative importance of global shocks leads to lower persistence and greater volatility. Finally, we compare some regional integration agreements and find that the EC emerges as the most integrated block. The analytical framework used is that of Forni, Hallin, Lippi and Reichlin (1999). First version: November 1999/Final version accepted: November 2001 RID="*" ID="*"  Université Libre de Bruxelles, DULBEA – CP 140, 50 av. Franklin Roosevelt, 1050 Bruxelles, Belgium. We are grateful towards two anonymous referees for their really helpful remarks. We also wish to express our deepest gratitude towards Lucrezia Reichlin for her very precious advice. We also would like to thank Jorge Rodigez and Marco Lippi for providing large pieces of code and Khalid Sekkat, Christophe Croux, Frederic Pivetta, and Francois Rycx for helpful comments and discussions.     

Are there cycles in realistic overlapping cohorts models?

Following Gale, 1973 (J. Econ. Theory 4, 110–137), Benhabib and Day, 1982 (J. Econ. Dyn. Control 4, 37–55) and Grandmont, 1985 (Econmetrica 45, 995–1045) proved the existence of P-cycles in Overlapping Generations (OLG) models. Aiyagari, 1989 (Q. J. Econ 104, 163–185) considered Overlapping Cohorts (OLC) models, with very long-lived agents of positively discounted utility functions and proved nonexistence of 2-cycles. We study OLC models with agents of normal life spans and utilities and show that: (1) for constant relative risk aversion (CRRA) utility (except for Leontief case), no 2-cycle exists; and (2) for Cobb-Douglas utility, no P-cycle exists.     

Euro Area business cycles in turbulent times: convergence or decoupling?

We study the business cycle properties of the four largest European economies in the wake of the recent recession episodes. The analysis is based on the factors estimated from a multi-country and multi-sector data-rich environment. We measure alikeness of business cycles by studying the synchronization of up and down phases, the convergence properties of country fluctuations towards the Euro Area (EA) cycles and the contribution of the EA factor to national GDP volatilities. While the economic fluctuations of the four EA member states were similar before the global financial turmoil, we gather compelling evidence of an asymmetric behaviour of Spanish fluctuations relative to the EA one.     

Financial supply cycles in post-transition Europe – introducing a composite index for financial supply

This paper introduces a new composite index – the financial supply index (FSI) – measuring the level of supply of foreign capital to small open economies. FSI is estimated on a sample of 11 EU new member states (NMS) applying Kalman filtering, principal components and variance-equal weights. Results indicated that the main drivers of financial supply to NMS are externally determined, with economic sentiment and business climate in the Eurozone carrying the highest weight. FSI proved to have a good predictive power for debt inflow dynamics. In addition, we create a new indicator – the Refinancing Risk Ratio, which relates the supply and demand for foreign capital – to quantify the external refinancing conditions and risk faced by the government. We distinguish between two recent episodes of high refinancing risk – one during the global crisis, and the other during the European sovereign debt crisis – but the episodes significantly differ in nature.     

Detrending methods and stylized facts of business cycles in Norway – an international comparison

This paper analyses the stylized facts of business cycles in Norway, by comparing different detrending methods. As the choice of the appropriate data transformation depends on the nature of the underlying dynamic properties of the time series, a set of unit root tests are first applied to the data. The detrended data are analysed, both in the time domain and the frequency domain. The evidence suggests that whereas some variables (e.g. consumption and investment) behave consistently procyclically with GDP, for other variables (e.g. real wage and prices), the business cycle properties vary considerably with the detrending methods used. The results are evaluated from a real business cycle perspective, but overall, there is little evidence to support a (supply driven) real business cycle. Symmetries in business cycles are finally analysed by comparing the business cycles in Norway and selected countries. First version received: April 1997 / Final version received: November 1999     

Are business cycles stationary fluctuations around a deterministic trend? Empirical evidence from 79 developing countries

There is a large literature that tests the univariate time series properties of the real output series following the seminal work of Nelson and Plosser (1982). Whether or not real output is characterized by a unit root process has important implications. A unit root in real output, for instance, is inconsistent with the notion that business cycles are stationary fluctuations around a deterministic trend. In this paper, we investigate the univariate time series properties of real output for 79 developing countries using the conventional augmented Dickey and Fuller (1979) unit root test, the Zivot and Andrews’ (1992) one structural break unit root test, and the Lumsdaine and Papell (1997) two structural breaks unit root test. Our main finding is that, for 40 countries, real output is stationary around a trend. This indicates that business cycles are stationary fluctuations around a deterministic trend for only 51% of the developing countries in our sample.     

Evolutionary competition between prediction rules and the emergence of business cycles within Metzler’s inventory model

We revise Metzler??s well-known inventory model by developing a framework in which producers can either apply a simple but cheap extrapolative or a more sophisticated but expensive regressive forecasting rule to predict future sales. Producers are boundedly rational in the sense that they tend to select forecasting rules with a high evolutionary fitness. Using a mixture of analytical and numerical tools, we attempt to describe the characteristics of our model??s dynamical system. Our results suggest that the evolutionary competition between heterogeneous predictors may lead to irregular fluctuations in economic activity.     

How pervasive is the effect of culture on stock market linkages? Evidence across regions and economic cycles

We conduct a comprehensive study on the effect of culture on stock market linkages. With data on 25 national stock markets, a quantile regression model is used to estimate the determinants of market linkages using culture variable/s such as language, religion and Hofstede’s cultural dimensions while controlling for distance, economic and legal variables. Further, we test whether these effects hold across regions and if changes are detected during periods of market crisis. We also test if market liquidity, an indicator of market efficiency, diminishes the impact of culture on market linkages. The main conclusion is that culture preferences shape investor choices, which affects integration between stock markets. The equity markets with similar cultural traits tend to increase market linkages; however, we observe differences across regions. Furthermore, liquidity and economic uncertainty fail to have an impact on the significance of culture variable/s as determinants of market linkages.     

Are U.S. growth and value stocks similarly integrated with the world markets? A test across business cycles

Utilizing the bivariate GARCH-in-mean methodology, this study examines the strength of global risk premia using 10 major foreign stock markets with two style-based, large-cap U.S. index funds and S&P500, for the period 1993–2014. We incorporated seven U.S. business cycles. The foreign risk premium was found to be significantly strong for both growth and value stocks, and the S&P500 index, indicating that U.S. integration within global market is strong and persistent over the past 20 years. We report distinct risk characteristics owing to global linkages, for the two style-based U.S. funds over different business cycles. The foreign risk premium for growth stocks is mostly positive and especially high during contractions; in contrast, the value stocks demand more premiums during expansions. The growth and value linkages with foreign countries also vary quite substantially over the business cycles. A possible sign of convergence is the decreasing difference between value and growth foreign risk premiums, post-2001, perhaps indicative of greater domestic and global market integration. Our results support a solid, continuing trend of U.S. integration within global markets, with an influential role of business cycles.