Title: Revisiting non-linearities in business cycles around the world
Authors: Artur Silva Lopes - ISEG - Universidade de Lisboa (Portugal) [presenting]
Gabriel Florin Zsurkis - ISEG - Universidade de Lisboa (Portugal)
Abstract: First differenced logged quarterly series for the GDP of 29 countries and the euro area are used to assess the need to resort to nonlinear models to describe business cycle dynamic behaviour. Our approach is model (estimation)-free, based on testing only. Our aim is to maximize power to detect non-linearities and, simultaneously, to purport avoiding the pitfalls of data mining. The evidence that is found does not support some descriptions because the presence of significant non-linearities is observed for 2/3 of the countries only. Linear models cannot be simply dismissed as they are frequently useful. Contrarily to common knowledge, nonlinear business cycle variation does not seem to be an universal, undisputable and clearly dominant stylized fact. This finding is particularly surprising for the U.S. case. Some support for nonlinear dynamics for some further countries is obtained indirectly, through unit root tests, but this marginal to our study, based on indirect methods only and can hardly be invoked to support nonlinearity in classical business cycles. However, it is relevant from the output gap perspective.