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Permanent and transitory components of recessions

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Advances in Markov-Switching Models

Part of the book series: Studies in Empirical Economics ((STUDEMP))

Abstract

We propose a generalization of existing empirical business cycle models that allows us to decompose recessions into permanent and transitory components. We find that the transitory component of recessions accounts for between 77% and 96% of the observed variance of monthly indicator series. Our results suggest the following three-phase characterization of the business cycle: recession, high-growth recovery during which output partially reverts to its previous peak, and normal growth following the recovery. In addition, we find significant timing differences between the permanent and transitory components of recessions; most notably the lack of the usual high-growth recovery phase following the 1990–91 recession.

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Author information

Authors and Affiliations

  1. Department of Economics, Korea University, Seoul, 136-701, Korea

    Chang-Jin Kim

  2. Department of Economics, University of Houston, Houston, TX, 77204-5019, USA

    Christian J. Murray

Authors
  1. Chang-Jin Kim
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  2. Christian J. Murray
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Editor information

Editors and Affiliations

  1. Department of Economics, University of California, San Diego, 9500 Gilman Drive, 92093-0508, La Jolla, CA, USA

    James D. Hamilton

  2. School of Business and Economics, Wilfrid Laurier University, 75 University Avenue, N2L 3C5, Waterloo, Ontario, Canada

    Baldev Raj

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© 2002 Springer-Verlag Berlin Heidelberg

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Kim, CJ., Murray, C.J. (2002). Permanent and transitory components of recessions. In: Hamilton, J.D., Raj, B. (eds) Advances in Markov-Switching Models. Studies in Empirical Economics. Physica, Heidelberg. https://doi.org/10.1007/978-3-642-51182-0_2

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  • DOI: https://doi.org/10.1007/978-3-642-51182-0_2

  • Publisher Name: Physica, Heidelberg

  • Print ISBN: 978-3-642-51184-4

  • Online ISBN: 978-3-642-51182-0

  • eBook Packages: Springer Book Archive

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