The duration of business cycle expansions and contractions: Are there change-points in duration dependence?

The issue of whether the likelihood of an expansion or contraction ending is dependent on its age,i.e whether they are duration dependent, is widely addressed in the business cycles literature and evidence of positive duration dependence is found in several studies. However, there is an important issue that has not been explored in this literature yet: the presence of change-points in duration dependence. All the studies in this field depart from the assumption that the magnitude of duration dependence is the same over time. However, we conjecture that the degree of likeliness of an expansion or contraction ending as it gets older might change after a specific duration. To test for that possibility, this paper will allow for the presence of a change-point in the analysis of the duration of expansions and contractions for a group of 13 European and Non-European industrial countries over the period 1948-2009. The evidence provided by the estimation of a continuous-time Weibull duration model shows strong support for the presence of positive duration dependence, which is stronger for contractions than for expansions. Results also show that contractions have become longer over time and that their length is negatively affected by the length of the previous expansion. Most importantly, this paper provides quite interesting evidence for the presence of a change-point in duration dependence for expansions, but not for contractions. Results show that the magnitude of the duration dependence parameter decreases significantly when an expansion surpasses 10 years of duration. In particular, evidence of positive duration dependence is no longer found when an expansion surpasses that threshold.business cycles; expansions; contractions; duration dependence.

The Portuguese Business Cycle: Chronology and Duration Dependence

This paper tries to identify, for the first time, a chronology for the Portuguese business cycle and test for the presence of duration dependence in the respective phases of expansion and contraction. A duration dependent Markov-switching vector autoregressive model is employed in that task. This model is estimated over monthly and year-on-year (monthly) growth rates of a set of relevant economic indicators, namely, industrial production, a composite leading indicator and, additionally, civilian employment. The estimated specifications allow us to identify four main periods of contraction during the last three decades and the presence of positive duration dependence in contractions, but not in expansions.business cycles; duration dependence; Markov-switching.

Gravitational waves in massive gravity theories: waveforms, fluxes and constraints from extreme-mass-ratio mergers

Is the graviton massless? This problem was addressed in the literature at a phenomenological level, using modified dispersion relations for gravitational waves, in linearized calculations around flat space. Here, we perform a detailed analysis of the gravitational waveform produced when a small particle plunges or inspirals into a large non-spinning black hole. Our results should presumably also describe the gravitational collapse to black holes and explosive events such as supernovae. In the context of a theory with massive gravitons and screening, merging objects up to $1\,{\rm Gpc}$ away or collapsing stars in the nearby galaxy may be used to constrain the mass of the graviton to be smaller than $\sim 10^{-23}\,{\rm eV}$, with low-frequency detectors. Our results suggest that the absence of dipolar gravitational waves from black hole binaries may be used to rule out entirely such theories.Comment: Important clarifications on screening and on our results added. Accepted for publication in Physical Review Letter

How Do Central Banks React to Wealth Composition and Asset Prices?

We assess the response of monetary policy to developments in asset markets in the Euro Area, the US and the UK. We estimate the reaction of monetary policy to wealth composition and asset prices using: (i) a linear framework based on a fully simultaneous system approach in a Bayesian environment; and (ii) a nonlinear specification that relies on a smooth transition regression model. The linear framework suggests that wealth composition is indeed important in the formulation of monetary policy. However, the attempts of central banks to mitigate undesirable fluctuations in say, financial wealth, may disrupt housing wealth. A similar result can be found when we assess the reaction of monetary authority to asset prices, although concerns about "price" effects are smaller. The nonlinear model confirms these findings. However, the concerns over wealth and its components are stronger once inflation is under control, i.e. below a certain target. Some disruptions between financial and housing wealth effects are still present. They can also be found in the reaction to asset prices, despite being less intense.monetary policy rules, wealth composition, asset prices.

The Portuguese Stock Market Cycle: Chronology and Duration Dependence

This paper tries to identify, for the first time, a chronology for the Portuguese stock market cycle and test for the presence of duration dependence in bull and bear markets. A duration dependent Markov-switching model is estimated over monthly growth rates of the Portuguese Stock Index for the period 1989-2010. Six episodes of bull/bear markets are identified during that period, as well as the presence of positive duration dependence in bear but not in bull markets.stock market cycles; bull and bear markets; duration dependence; Markov-switching.

How Does Fiscal Policy React to Wealth Composition and Asset Prices?

We assess the response of fiscal policy to developments in asset markets in the US and the UK. We estimate fiscal policy rules augmented with aggregate wealth, wealth composition (i.e. financial and housing wealth) and asset prices (i.e. stock and housing prices) using: (i) a linear framework based on a fully simultaneous system approach; and (ii) two nonlinear specifications that rely on a smooth transition regression (STR) and a Markov-switching (MS) model. The linear framework suggests that, while primary spending does not seem to react to wealth composition or asset prices, taxes and primary surplus are significantly: (i) cut when financial wealth or stock prices rise; and (ii) raised when housing wealth or housing prices increase. The smooth transition regression model shows that primary spending and fiscal balance are adjusted in a nonlinear fashion to both wealth and price effects, while the Markov-switching framework highlights the importance of tax cuts (in the US) and spending hikes (in the UK) to offset the decline in wealth during major recessions and financial crises. Overall, our results provide evidence of a non-stabilizing effect of government debt, a countercyclical policy and a vigilant track of wealth developments by fiscal authorities.fiscal policy, wealth composition, asset prices.

Pure, white and deadly… expensive: a bitter sweetness in health care expenditure

This paper analyses the impact of sugar availability/intake on diabetes expenditure and on total health care expenditure. Building this macroeconomic analysis upon the literature on the determinants of health care expenditure, we estimate a dynamic panel data model over a sample of 156 countries for the period 1995–2014. After controlling for the traditional determinants of health care spending, we find that an increase in sugar availability/intake leads to a significant rise in diabetes expenditure (per capita and per diabetic) and in the growth rate of total health care expenditure per capita. Moreover, we show that this causal relation is present in both developed and developing countries

Riding the wave of credit: Are longer expansions really a bad omen?

Some studies argue that credit booms that end up in banking crises are usually longer than those that end without creating havoc. However, they do not test this hypothesis empirically. This paper employs a duration model to assess the relationship between the length of credit booms and their outcome. The empirical analysis shows that credit expansions that end in banking crisis are indeed more prone to last longer than those that end softly. Furthermore, differences in length patterns are found to start in the build-up phase, extending to the unwinding phase of credit cycles.Fundação para a Ciência e Tecnologia (FCT