It Ain't Over Till it's Over: A Global Perspective on the Great Moderation-Great Recession Interconnection

76 Pages Posted: 25 Jul 2015

See all articles by Fabio C. Bagliano

Fabio C. Bagliano

University of Turin - Department of Economics and Statistics; Center for Research on Pensions and Welfare Policies (CeRP); University of Turin - Collegio Carlo Alberto

Claudio Morana

Università di Milano Bicocca; Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS); Università degli Studi di Milano-Bicocca - Center for European Studies (CefES); Center for Economic Research on Pensions and Welfare Policies (CeRP); Rimini Center for Economic Analysis - Europe ETS; Rimini Center for Economic Analysis - HQ

Date Written: July 24, 2015

Abstract

A large-scale model of the global economy is used to investigate the structural determinants of the Great Moderation and the transition to the Great Recession (1986-2010). Beside the global economy perspective, the model presents the novel feature of a broad range of included financial variables and risk factors measures. The results point to the relevance of various mechanisms related to the global monetary policy stance (Great Deviation), financial institutions' risk taking behavior (Great Leveraging) and global imbalances, in shaping aggregate fluctuations. The paper finally contributes to the literature on early warning indicators, assessing the information content of risk factor innovations for the prediction of the timing and depth of the Great Recession.

Keywords: Great Moderation, Great Recession, risk factors, early warning system, macro-financial instability; FAVAR models.

JEL Classification: E32, E44, G01, G15, C22.

Suggested Citation

Bagliano, Fabio C. and Morana, Claudio, It Ain't Over Till it's Over: A Global Perspective on the Great Moderation-Great Recession Interconnection (July 24, 2015). University of Milan Bicocca Department of Economics, Management and Statistics Working Paper No. 303, Available at SSRN: https://ssrn.com/abstract=2635470 or http://dx.doi.org/10.2139/ssrn.2635470

Fabio C. Bagliano

University of Turin - Department of Economics and Statistics ( email )

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HOME PAGE: http://web.econ.unito.it/bagliano

Center for Research on Pensions and Welfare Policies (CeRP) ( email )

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University of Turin - Collegio Carlo Alberto ( email )

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Italy

Claudio Morana (Contact Author)

Università di Milano Bicocca ( email )

Dip Economia Metodi Quantitativi Strategie Impresa
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Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

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Milan, 20126
Italy

Università degli Studi di Milano-Bicocca - Center for European Studies (CefES) ( email )

U6 Building
Viale Piero e Alberto Pirelli, 22
Milano, 20126
Italy

Center for Economic Research on Pensions and Welfare Policies (CeRP) ( email )

Moncalieri, Turin
Italy

Rimini Center for Economic Analysis - Europe ETS ( email )

Piazza Ateneo Nuovo 1
Milan, 20126
Italy

Rimini Center for Economic Analysis - HQ ( email )

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United States

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