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New Publication "„How much should we trust five-year averaging to purge business cycle effects?...."

25/01/2021

by Simon Sturn and Gerald Epstein (UMASS)

New publication by Simon Sturn and Gerald Epstein (UMASS) on „How much should we trust five-year averaging to purge business cycle effects? A reassessment of the finance-growth and capital accumulation-unemployment nexus” in Economic Modelling.

The researchers argue that averaging data over five years to purge business cycle effects in cross-country/time-series studies neglects that business cycles have been found to last 7–10 years on average, with substantial heterogeneity within and between countries. By replicating studies that, based on five-year averaging, find growth-enhancing effects of finance for a panel of 130 countries, and unemployment-reducing effects of capital accumulation for a panel of 20 OECD countries, they show that five-year averaging leads to insufficiently purged cyclical effects and biased estimates.

Link to the publication (50 days’ free access link with disabled pop-up blocker): https://authors.elsevier.com/a/1cSU1yGFsMbnZ)

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