A Survival Analysis of the Contraction Phases of Business Cycles in Industrial Countries

Abstract

This study tried to determine whether systematic changes have taken place in the size (amplitude) and duration (length) of business cycle phases in industrial countries over the past half century and to analyze, by using two parametric duration models, mainly, Gompertz and Weibull models, the possible effects of some macroeconomic variables, such as labor productivity growth, inflation, real interest rate, openness, oil prices, and gross saving rate, on the duration of the contraction phases of business cycles. The reference turning point chronology elaborated by the OECD for 23 industrial countries for the post-1956 period was used. The sample included 258 expansions and 267 contraction spells. The widespread belief that the length of expansions has, on average, become longer and that of contractions has become shorter over time was not supported in our sample. There is sufficient evidence of monotonically increasing hazard rates for both contraction and expansion durations; i.e., the spells are positively duration-dependent. Regarding the impacts of covariates on the hazard rate of contractions, the saving rate, openness, productivity growth, and size (depth) were found to have significant positive impacts, whereas the real interest rates have a negative effect. Inflation, oil prices, and length of previous expansion period have no significant impact on contraction durations.

Key words: Survival analysis, Duration models, Business cycles, Recessions, Industrial countries, Factors driving business cycles.
JEL: C41, E32, F44.