Is the Next U.S. Recession Around the Corner? Yes, Most Likely.

In a Vox.eu column, I am suggesting, based on my recent work on business cycles, that there is good reason to expect a US recession in the next two years.

New published paper : When is nonfundamentalness in SVARs a real problem?

I posted on my “current work” and “publication” page the last revision of a paper with Paul Beaudry, Patrick Fève and Alain Guay “When is nonfundamentalness in SVARs a real problem?” . That work is forthcoming in the Review of Economic Dynamics. As written in the abstract,

In SVARs, identification of structural shocks can be subject to nonfundamentalness, as the econometrician may have an information set smaller than the economic agents’ one. How se- rious is that problem from a quantitative point of view? In this paper we propose a simple diagnostic for the quantitative importance of nonfundamentalness in structural VARs. The di- agnostic is of interest as nonfundamentalness is not an either/or question, and its quantitative implications can be more or less severe. As an illustration, we apply our diagnostic to the iden- tification of TFP news shocks and we find that nonfundamentalness is of little quantitatively importance in that context.

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Key Words are NonFundamentalness, BusinessCycles, SVARs, NewsShocks.

JEL Classification codes are C32, E32.

New paper : Duration Dependence in US Expansions: A re-examination of the evidence

I posted on my “current work” page a new paper with Paul Beaudry  “Duration Dependence in US Expansions: A re-examination of the evidence” (CEPR Discussion Paper 13626). As written in the abstract,

It is commonly accepted that economic expansions do not exhibit duration dependence, that is, the probability of an expansion terminating in the near future is thought to be independent of the length of the expansion. Our main focus is on determining the probability of the US economy entering a recession in the following year (or following two years) conditional on the expansion having lasted q quarters. When looking at the probability of entering a recession within a year (or 2 years), we find considerable evidence of economically significant duration dependence, especially when adopting a non-parametric approach. For example, for an expansion that has lasted only 5 quarters, the probability of entering a recession in the next year is around 10%, while this increases to 30-40% if the expansion has lasted over 35 quarters. Similarly, if looking at a two years window, we find the probability of entering a recession in the next two years raises from 25 30% to around 50-80% as the expansion extends from 5 quarters to 32 quarters. This pattern suggests that certain types of macroeconomic vulnerabilities may be accumulating as the expansion ages causing the arrival of a recession to become more likely. Our non-parametric estimates suggest that this later pattern is especially important once a recession has lasted more than 6 years.

Key Words are Monetary Policy, Business Cycle.

JEL Classification codes are E3, E32, E24.

Royal Economic Society Annual Conference, Warwick, April 15-17, 2019

I have attended the Royal Economic Society Annual Conference in Warwick. The program chair and deputy chair were my colleagues Fabien Postel-Vinay and Terri Kneeland. I presented my joint work with Paul Beaudry and Chenyu Hou “Real Keynesian Models and Sticky Prices”. The slides of my presentation are here.