In an empirical study Claessens et al. (2008) analyze the behavior of macroeconomics and financial variables around business cycles’ recessions, credit crunches, and asset (house and equity) price busts.
They find that during the onset of recessions, unemployment is already starting to rise. After the recession starts the increase in the unemployment rate accelerates. Thus, unemployment is a good leading indicator of economic activity: it typically begins climbing a quarter ahead of recessions but stays compressed more than a year after the end of recession (Figure panel a).
Prior to the start of a credit crunch unemployment is already starting to rise, but as activity slows down after the beginning of a crunch, the increase in the rate of unemployment accelerates (Figure panel b).
During a house price busts unemployment starts to rise after two years, as the impact of the house price decline is gradually felt more broadly (Figure panel c). However, unemployment experiences only a very small increase after an equity price bust (Figure panel d).
They find that during the onset of recessions, unemployment is already starting to rise. After the recession starts the increase in the unemployment rate accelerates. Thus, unemployment is a good leading indicator of economic activity: it typically begins climbing a quarter ahead of recessions but stays compressed more than a year after the end of recession (Figure panel a).
Prior to the start of a credit crunch unemployment is already starting to rise, but as activity slows down after the beginning of a crunch, the increase in the rate of unemployment accelerates (Figure panel b).
During a house price busts unemployment starts to rise after two years, as the impact of the house price decline is gradually felt more broadly (Figure panel c). However, unemployment experiences only a very small increase after an equity price bust (Figure panel d).
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