Silvia Palașcă, PhD CandidateElisabeta Jaba, Professor Emeritus

Alexandru Ioan Cuza University of Iași

LEADERS AND FOLLOWERS IN THE

BUSINESS CYCLE GAME. A CASE STUDY OF THE

G-7

Aim of the study

Markov switch

model -BC

Duration

OccurrenceChange

Context

G7 countries

Economic leaders

Crisis

BC anatomy

Interconnections

Previous studies

Macro-cycles- EURO, G7•Canova and Ortega (2007)•Camacho (2007)•Perez-Quiros (2006)•Cologni and Manera (2009)•Stock and Watson (2005)

Transmission mechanisms•Eickmeier (2007)•Artis and Okubo (2009)•Fidrmuc and Ikedae (2012)

Markov switch models•Hamilton (1989)•Fritsche and Kuzin (2005)•Krolzig (2003)•Perlin (2012)

G7

countries

GDP

quarterlygrowth rate

OECD database

1991 Q1

2013 Q1

Population

Methodology

p11

p12

p22

p21

Markov switch models

pppp2221

1211

Results and discussionsCanada France Germany Italy UK USA Japan

p11 0.98 0.98 0.98 0.98 0.98 0.98 0.98

p22 0.65 0.71 0.50 0.66 0.74 0.77 0.92

Expansionexpected

65.70 56.01 56.87 58.89 61.55 58.20 47.89

Crisis expected

2.88 3.46 2.01 2.91 3.85 4.36 12.12

Crisisin

70.5Q3 08

68.5Q1 08

70.5Q3 08

69Q2 08

68.5Q1 08

67.5Q4 07

69Q2 08

Crisisout

73.5Q2 09

72.5Q2 09

72.5Q2 09

72.5Q2 09

73.5Q3 09

73Q3 09

83.5Q4 11

Crisis measured

3 4 2 3.5 5 5.5 14.5

Results and discussionsCrisis submergence

1.USA - too big to fail

2.UK - sync with USA

3.France- house bubble

4.Japan- delayed

5. Italy -Euro sync

6. Canada- USA proximity

7. Germany

Crisis overcoming

1. Germany- delayed fluctuations

2. France- sync with Germany

3. Italy- tax rebates

4. USA

5. Canada- banking system

6. UK

7. Japan- trade openess

Results and discussions

Quadratic dependence between probability and crisis’ duration

Followers• Germany• Canada• Italy• Japan

Leaders• USA• UK• France

ConclusionsCRISIS

RECOVERYFollowers• USA• UK• Canada• Japan

Leaders• Germany• Italy• France

Contributions

Source =>Manifestati

on

Economic

classification

Markov models

Thank you!