Macroeconomic Earthquakes †

In the common jargon used by non-specialist commentators in newspapers or TV programs, business cycle downturns are sometimes described in terms of economic collapses, crashes or even earthquakes. Does these comparisons make any sense but for literary license? In particular, are economic recessions and recoveries governed at large by the same statistical law underlying earthquakes' occurrence? Providing an answer to this question may be of great interest to macroeconomists, given that certain empirical stylized facts associated with Pareto-Levy distributions, if found to hold true, might help in discriminating among alternative theories of the business cycle. In this paper, we look at the empirical distribution associated with the duration of business cycle recessions and recoveries for a set of crosscountry samples, over different time periods. We find that: i) recessions and recoveries are characterized by different invariant distributions, implying that they are likely to be governed by different dynamic laws; ii) power scaling regressions provide a reasonable fit in statistically modeling the distribution of recessions.