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Permanent and transitory components of recessions

Author

Listed:
  • Chang-Jin Kim

    (Department of Economics, Korea University, Seoul, 136-701, Korea)

  • Christian J. Murray

    (Department of Economics, University of Houston, Houston, TX 77204-5019 Final version April 5, 2001)

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.

Suggested Citation

  • Chang-Jin Kim & Christian J. Murray, 2002. "Permanent and transitory components of recessions," Empirical Economics, Springer, vol. 27(2), pages 163-183.
    • Handle: RePEc:spr:empeco:v:27:y:2002:i:2:p:163-183
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