Abstract

GONZALEZ-ESTRADA, Adrián  and  ALMENDRA-ARAO, Genaro. New Method for the Identification of Mexico's Economic Cycles. Inv. Econ [online]. 2007, vol.66, n.261, pp.13-33. ISSN 0185-1667.

Despite the economic and social costs of Mexico's economic crises and depressions, there exists no suitable and consistent theoretical procedure for the identification of economic cycles. The objectives of this research are: 1) to develop a theoretical-statistical consistent procedure for the identification of short and medium cycles, recoveries, booms, recessions and depressions; 2) to study cycles morphology, and 3) to compare the efficiency of the conventional method for the identification of cycles and their phases with these results. The alternative procedure hereby proposed departs from the identification of cycles by means of the Hodrick-Prescott (1997) filter applied to the quarterly real Gross Domestic Product (GDP) series. Then, the extreme values were identified using the procedure developed by Harding and Pagan (2002) and the contractions and expansions with a method used by Hamilton (2004). Our results show that conventional procedure is inefficient to identify cyclical fluctuations, because only 60.0% of economic cycle phases were correcdy identified. Therefore, we recommend the use of the alternative procedure hereby proposed for the identification of cycles, depressions, recessions, recoveries and booms. It was also corroborated that Mexico's economic cycles appear regularly, but they are not periodic nor symmetrical; they are of different amplitude and length and, henceforth, their volatility or variance differentiate them from each other.