Duration of the Great Recession: Does the pre-crisis financial expansion matter?
| Název práce v češtině: | Duration of the Great Recession: Does the pre-crisis financial expansion matter? |
|---|---|
| Název v anglickém jazyce: | Duration of the Great Recession: Does the pre-crisis financial expansion matter? |
| Akademický rok vypsání: | 2018/2019 |
| Typ práce: | diplomová práce |
| Jazyk práce: | angličtina |
| Ústav: | Institut ekonomických studií (23-IES) |
| Vedoucí / školitel: | PhDr. Jaromír Baxa, Ph.D. |
| Řešitel: | skrytý - zadáno vedoucím/školitelem |
| Datum přihlášení: | 10.10.2018 |
| Datum zadání: | 10.10.2018 |
| Zásady pro vypracování |
| Duration of economic recession is a key feature considering impacts of a recession to the future, presumably more important than the depth of a recession itself. Assessing what affects the length of economic recession is therefore very important for policy design, either for crisis management, or for preventing future crises. Studying the Great recession is especially important, as recessions originating in financial sector seem to have deeper long-term impacts on economy. Furthermore, there are signs of some mistakes done in economic policy during the Great recession, as we may see basically a recession within a recession in Euro area.
My motivation is to complement existing literature on closely related topics, given the surprising lack of literature governing the duration of Great Recession in particular. Long-term recovery essentially requires reestablishing economic growth and sustaining it, therefore I wish to utilize the conceptual framework used in Berg (2012), where the sustainability of economic growth is considered. Furthermore, i will build on facts about Great Recession presented by Ng (2013). Considerations about previous crises may also become useful. There was a housing bubble at the beginning of Great Recession, and Bracke (2011) is considering specifically the duration of housing cycles. More determinants of recovery can than be found for example in Aizenman (2012). Expected Contribution: There is a surprising lack of literature governing the duration of Great Recession in particular. Application of the conceptual framework used for closely related topics, namely the sustainability of economic growth (Berg, 2012), on the duration of Great Recession, will therefore be an important complement to existing literature. Given that duration is a key feature of any recession, my results could be useful for evaluating impacts of economic policy during the Great Recession and learning from mistakes that might have been made. |
| Seznam odborné literatury |
| Core Bibliography:
AIZENMAN, Joshua; PASRICHA, Gurnain Kaur. Determinants of financial stress and recovery during the great recession. International Journal of Finance & Economics, 2012, 17.4: 347-372. BERG, Andrew; OSTRY, Jonathan D.; ZETTELMEYER, Jeromin. What makes growth sustained?. Journal of Development Economics, 2012, 98.2: 149-166. BRACKE, Philippe. How long do housing cycles last? A duration analysis for 19 OECD countries. 2011. DIEBOLD, Francis X., et al. Business cycles: durations, dynamics, and forecasting. Princeton University Press, 1999. MARTIN, Philippe; PHILIPPON, Thomas. Inspecting the mechanism: Leverage and the great recession in the eurozone. American Economic Review, 2017, 107.7: 1904-37. NG, Serena; WRIGHT, Jonathan H. Facts and challenges from the great recession for forecasting and macroeconomic modeling. Journal of Economic Literature, 2013, 51.4: 1120-54. |
| Předběžná náplň práce |
| Hypotheses:
1. Hypothesis #1: Excessive fiscal consolidation prolongs the recovery time of a recession. 2. Hypothesis #2: Higher labour market flexibility (less rigid markets as general) shortens the recovery time of a recession. 3. Hypothesis #3: Financial sector expansion before the crisis increases the recovery time of a recession. Methodology: The first step of the analysis is data collection. I will focus on OECD and Eurostat databases primarily. However, working with rich panel data brings the problem that not all data may be easily accessible for all countries. Hence will I replicate the approach towards model selection as presented in Berg (2012) and pre-test the importance of certain variables sequentially within a small model first. When formulating the model based on panel data, inherent asymmetry of the duration distribution will arise. The use of Weibull distribution is suggested by some literature (Diebold, 1999). Most importantly, changes in economic policy will be handled in the model. The effect of such structural changes is presumably gradual, therefore the simple approach utilizing dummy variables for model shift does not seem to be appropriate. On the other hand, there is the danger of model overparametrization. Finding an appropriate way to represent impacts of structural changes will therefore be an important part of the thesis. Once appropriate model explaining the duration of Great Recession is found, including measurements of fiscal consolidation, flexibility of labor market and financial sector as variables, the testing of hypotheses itself is only a matter of parameter significance and sign. |
| Předběžná náplň práce v anglickém jazyce |
| Hypotheses:
1. Hypothesis #1: Excessive fiscal consolidation prolongs the recovery time of a recession. 2. Hypothesis #2: Higher labour market flexibility (less rigid markets as general) shortens the recovery time of a recession. 3. Hypothesis #3: Financial sector expansion before the crisis increases the recovery time of a recession. Methodology: The first step of the analysis is data collection. I will focus on OECD and Eurostat databases primarily. However, working with rich panel data brings the problem that not all data may be easily accessible for all countries. Hence will I replicate the approach towards model selection as presented in Berg (2012) and pre-test the importance of certain variables sequentially within a small model first. When formulating the model based on panel data, inherent asymmetry of the duration distribution will arise. The use of Weibull distribution is suggested by some literature (Diebold, 1999). Most importantly, changes in economic policy will be handled in the model. The effect of such structural changes is presumably gradual, therefore the simple approach utilizing dummy variables for model shift does not seem to be appropriate. On the other hand, there is the danger of model overparametrization. Finding an appropriate way to represent impacts of structural changes will therefore be an important part of the thesis. Once appropriate model explaining the duration of Great Recession is found, including measurements of fiscal consolidation, flexibility of labor market and financial sector as variables, the testing of hypotheses itself is only a matter of parameter significance and sign. |