Viewing 6 posts categorized under Business Fluctuations

A robust method to date recessions and compute output gaps

June 17, 2024

This article discusses ways to estimate trends in economic series such as GDP, steady increases in the series over time. In most applications, filtering consists in applying a linear operator like the average to a moving-centered window of the data. A special case of moving average is the widely used Hodrick and Prescott (HP) filter. In this method, the trend is chosen to minimise the weighted sum of the squares of deviations from data and the sum of the squares of the trend’s second difference.

Market stigma and bank capital

September 29, 2022

The Great Financial Crisis exposed vulnerabilities in the quality and quantity of banks’ capital. It was the catalyst for increasing regulatory capital requirements, including the introduction of macroprudential buffers that can be used during economic downturns to incentivize banks to continue providing credit to the economy instead of engaging in excessive de-leveraging or de-risking behaviors. However, market pressure to maintain or even increase capital ratios can constrain banks in using their buffers during economic downturns.

Economic austerity and the political environment

July 27, 2022

Anti-establishment and EU-skeptic parties have gained significant support since the Great Recession and the subsequent European Sovereign Debt Crisis. Higher vote shares for these parties have increased partisan conflict and led to more fragmented parliaments. Interestingly, the rise in support for extreme parties occurred during a period of significant fiscal policy interventions. In particular, several European countries, such as Portugal, have implemented large-scale fiscal consolidation measures to reduce high levels of public debt, thereby averting the risk of sovereign default.

Loan guarantees and their implications for post-COVID-19 productivity

June 22, 2022

Many countries introduced or ramped-up loan guarantee schemes to bridge liquidity shortages as a key element of the policy response to the COVID-19 crisis. The analysis in this paper discusses the potential short and medium-term effects on productivity of loan guarantees via reallocation, relying on historical data on European firms. The findings suggest that, absent policy support, the COVID-19 shock had the potential to seriously distort market selection, as it would have raised sharply the probability to face financial difficulties across the whole distribution of firm-level productivity.

Boom, slump, sudden stops, recovery, and policy options: Portugal and the Euro

June 29, 2017

Over the past 20 years, Portugal has gone through a boom, a slump, a sudden stop, and now a timid recovery. Unemployment has decreased, but remains high, and output is still far below potential. Competitiveness has improved, but more is needed to keep the current account in check as the economy recovers. Private and public debt are high, both legacies of the boom, the slump and the sudden stop. Productivity growth remains low.

Demand, supply and markup fluctuations

October 24, 2016

Does monopoly power (i.e. markups) increase or decrease in recessions? If market power increases in recessions, production becomes more inefficient aggravating the recession. However, if market power decreases, competition works as a self-correcting mechanism in the economy increasing overall efficiency. For this reason, understanding how markups fluctuate has been so central in the debate about macroeconomic policy effectiveness. This debate is far from being solved. Its answer is empirical. However, there are two empirical challenges to determining the type of cyclical behavior of markups: (i) separating supply (productivity) shocks from demand shocks and (ii) properly measuring the markups.