The course of the Great Depression: a consistent business cycle dating approach

Abstract

This study dates business cycles in 10 European countries, the United States, and Japan between 1925 and 1936. The aim is to establish a consistent dating of the world economic crisis, which is a precondition for understanding the sharp economic decline in many countries during the interwar period. Three approaches were applied that are common in business cycle dating. First, a deskriptive analysis infers on recessions based on the two-consecutive quarters approach often associated with the US National Bureau of Economic Research. Second, the time series is decomposed into trend and cycle using the Hodrick-Prescott (1980) filter. The third approach is to use Markov-regime switching models, which was proposed by Hamilton (1989) for such purposes. The results of confirm that the Great Depression was a global phenomenon, not limited to the US or Germany. Business cycle comovement in the interwar period is at a level comparable to the post- WWII period. This finding points at the contribution of international business cycle integration to the course of the decline in single countries.