554 HSE ECONOMIC JOURNAL No.

Economic Journal of the Higher School of Economics. 2015.Vol. 19.No.4. S. 554-575.

HSE Economic Journal, 2015, vol. 19, no.4, pp. 554-575.

Dating the Russian business cycle

Dubovskiy D.L., Kofanov D.A., Sosunov K.A.

In this work, on the basis of classical methods, we developed our own method for dating the business cycle of the Russian economy in the post-Soviet period, starting

from the mid-1990s. The purpose of this work is to identify and date business cycles that have taken place in the Russian economy over the past fifteen years. The methods of

Harding - Pagan and Hamilton were used as a basic approach. Thus, the dates of the turning points of the reference Russian business cycle from the second half of the 1990s were

obtained. It should be noted that both dating methods give largely similar results. The data from the national accounts statistics provided by Rosstat were used as the initial data. as

well as the data obtained on their basis on various sectors of the economy from the Unified Archive of Economic and Sociological Data of the Higher School of Economics. The main

conclusion of the work is that during 1998–2014. the Russian economy went through two full cycles of economic activity, with troughs in October 1998 and May 2009 and peaks in

April 2008 and September 2012.Since this month, the Russian economy has been in a stable state for two years, showing no economic growth, and since 2015 has passed into a

significant recession. The work also dated the growth cycles. The main conclusion is that, in this case, two more recessions in the growth cycle were identified in the economy: from

November 2001 to June 2002 and from June 2004 to January 2005. The last recession in the growth cycle began in January 2012 r. The main conclusion of the work is that during

1998–2014. the Russian economy went through two full cycles of economic activity, with troughs in October 1998 and May 2009 and peaks in April 2008 and September 2012.Since

this month, the Russian economy has been in a stable state for two years, showing no economic growth, and since 2015 has passed into a significant recession. The work also dated

the growth cycles. The main conclusion is that, in this case, two more recessions in the growth cycle were identified in the economy: from November 2001 to June 2002 and from

June 2004 to January 2005. The last recession in the growth cycle began in January 2012 r. The main conclusion of the work is that during 1998–2014. the Russian economy went

through two full cycles of economic activity, with troughs in October 1998 and May 2009 and peaks in April 2008 and September 2012.Since this month, the Russian economy has

been in a stable state for two years, showing no economic growth, and since 2015 has passed into a significant recession. The work also dated the growth cycles. The main

conclusion is that, in this case, two more recessions in the growth cycle were identified in the economy: from November 2001 to June 2002 and from June 2004 to January 2005. The

last recession in the growth cycle began in January 2012 r. and peaks in April 2008 and September 2012. Since this month, the Russian economy has been in a stable state for two

years, showing no economic growth, and since 2015 has passed into a significant recession. The work also dated the growth cycles. The main conclusion is that, in this case, two

more recessions in the growth cycle were identified in the economy: from November 2001 to June 2002 and from June 2004 to January 2005. The last recession in the growth cycle

began in January 2012 r. and peaks in April 2008 and September 2012. Since this month, the Russian economy has been in a stable state for two years, showing no economic growth,

and since 2015 has passed into a significant recession. The work also dated the growth cycles. The main conclusion is that, in this case, two more recessions in the growth cycle were

identified in the economy: from November 2001 to June 2002 and from June 2004 to January 2005. The last recession in the growth cycle began in January 2012 r.

Keywords: macroeconomics; cycles of economic activity; dating of business cycles; turning

points; macroeconomic indicators; Russian economy.

__________________________________
Dmitry Dubovsky - Researcher at the Russian Academy of National Economy and Public
Administration under the President of the Russian Federation.
E-mail: Dmitry.dubovskiy@gmail.com
Dmitry A. Kofanov - Ph.D., student of the University of Wisconsin at Madison. E-mail:
kofanov@wisc.edu
Sosunov Kirill Alexandrovich - Associate Professor at the Higher School of Economics, the Russian Academy of National
Economy and Public Administration under the President of the Russian Federation. E-mail: ksosunov@gmail.com

Received: June 2015 / Received: August 2015

2015 HSE ECONOMIC JOURNAL 555

Introduction

The business cycle, i.e. alternation of ups and downs in the economy is an integral part of
the economic development of any country. E.F. Clements, in his speech at the Conference on Cycles
at the Carnegie Institution, gave the first scientific definition of a business cycle, which was later
refined by W. Mitchell as "not strictly periodic, but recurring phases in the level of economic activity
that can be measured."

It is useful for authorities, business, and ordinary citizens to understand what phase of the
cycle the economy is in and how it is possible to describe the historical structure of business cycles.
The word "recession" is now often heard in the statements of officials and analysts, but there is no
consensus on whether our economy has entered a recession or not. Therefore, it is useful for
economists to have some general criteria for determining the phase of the business cycle, some
authoritative dating of ups and downs, which could be referred to by the authorities and the
business community. In most developed countries, there are separate authoritative organizations
that have been performing such an analysis since the first half of the twentieth century. The
Russian economy entered the path of market development only a little over twenty years ago, and
therefore there are very few similar works in Russia.

The purpose of this work is to identify and date business cycles that have taken place in the
Russian economy over the past fifteen years. The economic interpretation and substantiation of
certain internal and external processes affecting business activity in the country goes beyond the
scope of this study and is of undoubted interest for further work in this area.

The oldest organization dedicated to determining the dates of business cycles is the US
National Bureau of Economic Research. Since 1929, it has regularly alerted the public to whether
the US economy is in a boom or recession by publishing the dates for its famous "reference cycle".
True, the dating procedures are such that the end of the next recession is announced with a great
delay: for example, the National Bureau announced that the crisis reached its lowest point in June
2009 only in September 2010. Moreover, the Bureau does not disclose its dating methodology and,
most likely, this procedure is not algorithmized, but is based on the opinions of the members of the
Dating Commission. But this by no means diminishes the authority of his assessments in the eyes
of society.

Academic economists have proposed several different methodologies for describing and
dating business cycles. The first studies on this topic began in the 1920s. The book by W. Thorp
[Thorp, 1926] describes 166 cycles in 17 countries of the world. The work of A. Burns and W.
Mitchell [Burns et al., 1946] is devoted to a detailed analysis of business cycles in the United States
and the identification of turning points in the level of economic activity in various sectors of the
economy. They are also trying to isolate a "reference cycle" - a single tool
556 HSE ECONOMIC JOURNAL No. 4

an indicator characterizing the state of the entire economy. The first attempt to algorithmize the
dating of the cycle and describe its phases was undertaken in the work of G. Bry and S. Beauchamp
in 1971 [Bry et al., 1971]. D. Harding and A. Pagan in [Harding, Pagan, 2002; 2006] summarize their
research and develop nonparametric dating algorithms, descriptions of the phases of the cycle and
the allocation of a "reference cycle" on the dynamics of various macroeconomic indicators. An
alternative dating method based on the regression method with Markov switching was proposed
by J. Hamilton in [Hamilton, 1989; Chauve, Hamilton, 2005].

Dating the classic Russian business cycle

At the first stage of the study, we dated the cyclical fluctuations of various macroeconomic
indicators of the Russian Federation using the information described in [Harding, Pagan, 2002;
2006] Harding-Pagan algorithm for quarterly data and its modification for monthly data. We used
quarterly data from national accounts statistics provided by Rosstat and monthly data on various
sectors of the economy provided by Rosstat and seasonally adjusted by the HSE Unified Archive of
Economic and Sociological Data. Note that the original data are seasonally adjusted.

Quarterly dating

We used the following data provided by Rosstat: GDP, total gross capital formation, gross
fixed capital formation, changes in inventories and working capital. Rosstat provides seasonally
adjusted data from the 1st quarter of 2003, but we used data from 1998 and therefore extended
Rosstat data back using its seasonal factors. Although this method is not the best, it turns out to be
not very significant in the framework of this study: in the period from 1998 to the end of 2002, the
Russian economy obviously went through a phase of rapid growth, and therefore no turning points
can be expected at this time. We also used a specially constructed variable by us, which is designed
to cut off the effect of the external conjuncture of the world energy markets and highlight the
component of the business cycle in the internally oriented sector of the Russian economy. For this,
we have built a chain GDP index excluding the export of oil, oil products and gas abroad. The main
purpose of building such an index is to try to highlight that part of economic activity that is not
related to the export of energy resources and to assess cyclical fluctuations in this very indicator.
We assume that it will provide a more accurate description of the phase of the cycle of economic
activity. Since, according to one of the definitions, GDP is the sum of the values of all final goods
produced in the economy, we can subtract from it the value of energy resources exported abroad,
which are also final goods, and thus obtain an indicator of production activity, cleared of the direct
influence of foreign economic conditions. Despite the fact that Rosstat uses the value added
method in assessing GDP, we believe that errors arising when measuring GDP by different
methods do not affect the dynamics of this
2015 HSE ECONOMIC JOURNAL 557

indicator. When constructing the index, we used data on the real volumes of this export and its
actual value. We have been able to build such an index since 2000. The details of how the index is
built are given in the Appendix. Seasonal adjustment was performed using the TRAMO-SEAT utility
from the Demetra software package, which is also used by Rosstat for seasonal data adjustment.

Dating is carried out in two stages: the first is to search for “potential” turning points in the
series under consideration. For this, the algorithm is used not on actual data, but on smoothed
data in order to cut off short-term volatility that is not related to the business cycle. We used a two-
quarter simple moving average and a Hodrick-Prescott filter with a factor of 10, which is largely
equivalent to a short window moving average. Thus, potential turning points are found, which are
used later as starting points for the search. Choice of window length, coefficientλ and weights
when smoothing have an impact on the dating of business cycles carried out at this stage,
however, given that the resulting dating is based on unsmoothed data, this choice is irrelevant.

At the next stage, based on the obtained potential fracture points in the considered
indicators, we, examining the unsmoothed series, produce the final dating of the fracture points in
the considered indicators. We do this by finding the actual low and high points in the seasonally
adjusted unsmoothed data in the vicinity of the inflection points obtained in the first step. As a
result, we have identified the breaking points for each considered indicator, which are presented in
table. 1 together with the main characteristics of the cycle for different indicators: average
duration, amplitude of each phase and average annual rate of change of the indicator.

Table 1 shows the dating results (turning points) for the data under consideration. It can be
noted that in all variables there is the lowest point of the cycle (bottom) at the turn of 1998-1999,
after which the economy began to grow due to the devaluation of the ruble in August 1998 and a
sharp rise in world energy prices. The growth phase lasted until mid-2008, after which the economy
went into recession caused by the global financial crisis and a sharp drop in oil prices. The
recession lasted for about a year, after which all the variables under consideration entered the
growth phase. At the end of 2012, all variables, except for the total GDP, reached another peak and
reached a plateau or began to decline until the end of 2013, after which a transition to growth was
outlined in a number of data, but it is too early to draw conclusions about an exit from stagnation
at this stage. since the current data will be revised by Rosstat, and also because the dating of the
last turning point requires data for future periods. The table shows the break points obtained by
the algorithm for the smoothed quarterly indicators of the system of national accounts.

It is worth noting that in the overwhelming majority of cases, all variables behave
synchronously, which indicates that the obtained points really reflect the dynamics of the business
cycle. The only case when no break occurs in one of the variables is that GDP did not peak at the
end of 2012, but continued to grow, despite the fact that the dynamics of other indicators indicate
the beginning of a recession. However, although GDP is the main indicator of the aggregate
dynamics of the economy, we conclude
558 HSE ECONOMIC JOURNAL No. 4

We believe that at the end of 2012 there was a transition from the expansion phase to the recession
phase, because the GDP, excluding the export of energy resources, showed a turning point
along with all other considered indicators.
Table 1.
Dating the Russian business cycle
(unsmoothed quarterly data)

Bottom Peak Bottom Peak Average Average Average Average

continue amplitude continue amplitude
strength decline,% strength lifting,
recession lifting %

Gdp III: 1998 II: 2008 II: 2009 3.7 - 8.80 27.5 25,80

GDP - ex
oil port II: 2008 III: 2009 III: 2012 3.5 - 7.00 23.5 45.60

Investment IV: 1998 III: 2008 II: 2009 II: 2012 3.7 - 51.50 25.5 106.30

Investments
in the main
capital IV: 1998 II: 2008 III: 2009 III: 2012 3.3 - 19.90 26 117.50

Stocks IV: 1998 III: 2008 II: 2010 IV: 2011 6 18.33

the main
component IV: 1998 II: 2008 II: 2009 III: 2012 four 26

Help-
cycle IV: 1998 II: 2008 II: 2009 III: 2012 four 26

The final step of the study is the construction of turning points for the so-called "reference
cycle", i.e. a single set of turning points that characterize the dynamics of the business cycle. We
used two methods for this. First, we found the turning points of the reference cycle using the
nonparametric Harding-Pagan algorithm. In short, its essence consists in finding a single fracture
point in a cluster of fracture points for individual rows, which minimizes a specially determined
total distance to all points of the cluster. Second, with the help of the EViews package, we have
identified the “main component” that describes the dynamics of all the indicators under
consideration, and applied to it an algorithm for finding breakpoints, similar to that described
above.

Table 1 shows the inflection points we obtained for the quarterly reference cycle. We see
that the first recorded bottom of the cycle falls on the IV quarter. 1998, after which a phase of rapid
growth of the Russian economy began. We associate this turning point with the 1998 crisis and the
subsequent devaluation of the ruble, which led to the development of import substitution in the
country and the subsequent increase in world energy prices, which stimulated the development of
raw materials exports, and also, due to a sharp increase in export revenues, an increase in
aggregate demand, which led to production growth. The next turning point is the peak of the
second quarter. 2008 The subsequent recession is associated with the global financial crisis, which
led to a significant drop in the
2015 HSE ECONOMIC JOURNAL 559

viy trade and capital outflow from Russia. Both factors led to a reduction in aggregate demand and
a significant drop in production. The recession lasted for about a year, and in the II quarter. The
economy hit its lowest point in 2009, after which the economy began to grow, in part due to the
recovery of global energy markets, in part due to stimulating macroeconomic policies. The growth
continued until the III quarter. 2012, when the economy reached its peak, and stagnation began,
and in some places a decline in production. We identify this point as the beginning of another
recession in Russia. Although it looks very mild, both in absolute terms and in comparison with the
recession of 2008-2009, the absence of tangible growth for more than two quarters allows us to
state that the economy is entering a recession phase.

Dating on monthly data

In the next phase of the study, we dated monthly data. The main advantage of this approach is, firstly, in a more accurate determination of the break points of the cycle, and

secondly, in the presence of a large amount of data with a monthly measurement frequency. For the study, we used data on the output index for basic types of economic activity, which

characterizes the state of the economy as a whole and serves as an analogue of GDP for quarterly data; two labor market indicators: total employment and unemployment as defined by

the International Labor Organization; investments in fixed assets; the general index of industrial production and the index of production in the manufacturing industry; commercial freight

turnover of transport and the index of the volume of work for the section "construction". Official data are provided by Rosstat, which does not seasonally adjust for most indices, so we

used seasonally adjusted data provided by the HSE's Unified Archive of Economic and Sociological Data. Often, such studies also use some indices of disposable income of the population,

however, in the Russian Federation, where a significant part of aggregate demand and income is stimulated by proceeds from energy exports, this indicator is closely related to their prices

and tends to grow even if the situation in the country worsens. Therefore, we believe that it does not properly reflect the cyclical dynamics of the internally oriented sector of the Russian

economy, and we do not use it for dating. provided by the Unified Archive of Economic and Sociological Data of the National Research University Higher School of Economics. Often, such

studies also use some indices of disposable income of the population, however, in the Russian Federation, where a significant part of aggregate demand and income is stimulated by

proceeds from energy exports, this indicator is closely related to their prices and tends to grow even if the situation in the country worsens. Therefore, we believe that it does not properly

reflect the cyclical dynamics of the internally oriented sector of the Russian economy, and we do not use it for dating. provided by the Unified Archive of Economic and Sociological Data of

the National Research University Higher School of Economics. Often, such studies also use some indices of disposable income of the population, however, in the Russian Federation, where

a significant part of aggregate demand and income is stimulated by proceeds from energy exports, this indicator is closely related to their prices and tends to grow even if the situation in

the country worsens. Therefore, we believe that it does not properly reflect the cyclical dynamics of the internally oriented sector of the Russian economy, and we do not use it for dating.

where a significant part of the aggregate demand and income is stimulated by the proceeds from the export of energy resources, this indicator is closely related to their prices and tends to

grow even if the situation in the country worsens. Therefore, we believe that it does not properly reflect the cyclical dynamics of the internally oriented sector of the Russian economy, and

we do not use it for dating. where a significant part of the aggregate demand and income is stimulated by the proceeds from the export of energy resources, this indicator is closely related

to their prices and tends to grow even if the situation in the country worsens. Therefore, we believe that it does not properly reflect the cyclical dynamics of the internally oriented sector of

the Russian economy, and we do not use it for dating.

Similar to quarterly data, in the first step, we look for potential turning points in each row by
applying the Harding-Pagan algorithm to the smoothed data. For smoothing, we used three- and
six-month moving averages and the Hodrick-Pressot filter with the parameter 150. The choice of
the period length and filtering parameter can only affect the first stage of dating, but are not
reflected in the final results. So, we have highlighted the turning points in each indicator under
consideration. It is worth noting the fact that for most of the variables they agree with the turning
points we found for quarterly data of the system of national accounts. They were found at the end
of 1998 (bottom), early 2008 (peak), early 2009 (bottom), late 2012 (peak), in mid-2013 (bottom), as
well as a potential peak at
560 HSE ECONOMIC JOURNAL No. 4

the beginning of 2014, which should be confirmed by data for subsequent periods and updated
data for the first half of 2014. At the same time, in the indicators reflecting the labor market, we
found another phase of the cycle - a fall from the end of 2002 (peak) to mid-2003 g. (bottom). Table
2 shows the potential turning points found for each variable under consideration.

Further, based on the obtained potential breakpoints, we find turning points in the
unsmoothed data series, highlighting the points of local minima and maxima in the vicinity of the
points obtained at the previous stage. We consider the new turning points obtained in this way as
the dates of the change in the phase of the cycle for each individual variable. It is worth noting that
they (with the exception of the 2002–2003 phase for labor market indicators) are in very good
agreement with each other and the dates of the turn in activity for the quarterly data discussed
above. Tables 3 and 4 show the found dates for each indicator under consideration along with the
main characteristics of the cycle - average duration, amplitude

each phase and the average annual rate of change of the indicator.
Table 2.
Dating the Russian business cycle
(smoothed monthly data)

Bottom Peak Bottom Peak Bottom Peak Bottom Peak

Base Index Sep 98 March.08 June.09 July 12 Feb.13 Jan 14

Investments November 98 Apr 08 Oct 09 Aug 12

Employment Feb.99 Aug 02 Apr 03 March.08 Sep 09 Oct 12 Sep 13 Apr 14

Unemployment Apr 99 June.02 June.03 Dec 07 Aug 09 Nov 12 Aug.13

Industry Sep 98 March.08 Feb 09 Oct 12 March 13 Apr 14

Processing
industry Jan 08 Apr 09 Sep 12 March13 May.14

Transport July 98 Feb 08 Apr 09 June 12 Feb.13 Nov.13

Building Apr 08 Dec 09 Oct 12

the main
component Sep 98 Feb 08 June.09 Oct 12 June 13 March 14
2015 HSE ECONOMIC JOURNAL 561

Table 3.
Dating the Russian business cycle
(unsmoothed monthly data)

Bottom Peak Bottom Peak Bottom Peak Bottom Peak

Base Index Sep 98 Apr 08 Apr 09 July 12 Feb.13 no.13

Investments Sep 98 Apr 08 Aug 09 July 12

Employment Aug 98 Aug 02 Feb.03 May.08 May.09 June 12 June 13 mar.14

Unemployment Feb.99 Aug 02 Feb.03 May.08 May.09 Feb.13 Oct.13

Industry Sep 98 March.08 Feb 09 Sep 12 Dec.13 May.14

Processing
March.08 Feb 09 Sep 12 Apr 13 May.14
industry

Transport Aug 98 Apr 08 May.09 Sep 12 May.13 Dec.13

Building Apr 08 Dec 09 Oct 12

the main
component Sep 98 Apr 08 Apr 09 Dec 12 June 13 Jan 14

Reference
cycle Oct 98 Apr 08 May.09 Sep 12 June 13 Feb.14

Table 4.
Dating the Russian business cycle
(unsmoothed monthly data, averaged values)

Average duration Average amplitude,%

recession lifting recession lifting

Base Index nine 54 - 8.10 31.50

Investments eighteen 75 - 13.70 75.60

Employment 10 39 - 2.10 4.80

Unemployment nine 40 1.80 - 2.40

Industry 13 54 - 8.90 31.00

Processing
industry eight 57 * - 12.70 27.20

Transport nine 54 - 11.50 22.00

Building twenty 72 - 20.80 60.70

Main component

Reference cycle eleven 55

* Manufacturing data starts in 2001, therefore does not include the bottom in 1998.
562 HSE ECONOMIC JOURNAL No. 4

In conclusion, we date the reference cycle using the Harding-Pagan nonparametric

algorithm and using the dating of the main component of the indicators under consideration. The
results are presented in table. 3. We identify the following dates for turning points in the level of
economic activity: the bottom in October 1998, the peak in April 2008, the bottom in May 2009 and
the peak in October 2012. The algorithm showed that the phase of the cycle in the dynamics of
employment and unemployment in 2002-2003. is not a phase in the reference cycle because most
of the series under consideration do not have a fall during this period and we do not distinguish it
as a recession phase in the reference cycle.
From a comparison table. 1 and 3, it can be seen that the overwhelming majority of the
dates we have selected at a monthly frequency are within the corresponding quarters that we have
identified in the analysis of quarterly data, which suggests that the dating procedure we use is
robust to the choice of the data frequency and can indeed be used as an indicator the state of the
economy.

Results obtained with

Hamilton-Chave method

At the next stage of the study, we apply the dating method proposed by J. Hamilton. Its
essence lies in the assumption that the transition from one phase of the cycle to another is a
Markov process, and the subsequent evaluation of the equation for the dynamics of this process.
The method makes it possible to estimate the average values of the rate of growth (decline) of the
indicator in each phase of the cycle, and also gives the probability of its being in one or another
phase at each moment of time.
Further, knowing the probabilities of being in a recession phase and based on the selected
threshold value and sensory rules for the length of each phase and the general cycle, one can
choose the periods of the economy in boom and bust states and highlight the break points of the
level of economic activity.
For each metric under consideration, we estimate the following equation using the EViews
package:

(one) Δ zt = gi + εt,

Where zt - the logarithm of the variable under consideration; gi - its average growth rate in the
phase i, i = 12; εt - random deviations that are assumed to be uncorrelated and
having variance σ2 i, potentially different in different phases. Following charts
and the tables show the estimated parameters of the equation and the calculated probability of
being in the ascent phase for each considered metric. It can be noted that the Markov switching
method and the Harding - Pagan algorithm are in good agreement with each other, although the
cycle phases obtained using the Hamilton method have, on average, a long duration, which can be
attributed to the fact that we estimated regressions for smoothed, and not for original data series.
2015 HSE ECONOMIC JOURNAL 563

Fig. one.Dating the GDP cycle using the Hamilton-Chave method

Fig. 2.GDP cycle dating excluding oil, oil products and gas
using the Hamilton-Chave method

Note to fig. 1 and 2:long dotted line - a series of GDP (logarithm), short dotted line - the probability of being in a
phase of recovery, solid line - being in a particular phase of the cycle (0 - recession, 1 - recovery).
564 HSE ECONOMIC JOURNAL No. 4

Preliminary results for 2013 - early 2014

Our analysis showed that in October 2012 the Russian economy entered a recession phase.
Further dating of the cycle of economic activity at the moment is only preliminary for several
reasons. First, Rosstat frequently updates data for the last year of observations. Secondly, despite
the technical satisfaction of the recession criteria, its amplitude is very small. Here, it would most
likely be correct to talk about stagnation of the economy at a fixed level, which began at the end of
2012, rather than about a recession, but the generally accepted dating method allows only two
phases of the cycle - upsurge and recession. Despite this, we can carry out an analysis based on the
available estimates of Rosstat.

Analysis of quarterly data of national accounts statistics showed that all of them, with the
exception of gross capital formation, began to grow in the III quarter of 2013, from which we
conclude that the tipping point of the end of the recession was in the II quarter of 2013 and the
recession lasted for three quarters, which exceeds the minimum value that satisfies the sensory
dating rule. In this case, however, it is worth considering the fact that the sensory rule for the
length of the entire cycle requires that it last at least six quarters, and therefore, in order for the
resulting inflection point to really mean the phase of the beginning of the ascent, it is necessary
that it lasts at least three quarters. Preliminary analysis of the data for the 1st – 2nd quarters shows
that the growth continued until the 1st quarter of 2014, and in the 2nd quarter the economy began
to decline. In this way,

The analysis of the monthly data we are considering also showed that in most of them (with
the exception of investments in fixed assets and the volume of work in construction), a turning
point occurred at the turn of the middle of 2013.The nonparametric Harding - Peygan algorithm
showed the date of the turning point in economic activity in June 2013. Thus, based on the data
available to date, the recession has lasted for nine months. It is worth noting that both quarterly
and monthly data show a turning point in the second quarter of 2013.

Analysis of the dynamics of macroeconomic indicators in the first half of 2014, however,
found that growth in all indicators, with the exception of unemployment, stopped at the turn of
2013–2014. Detailed analysis using the Harding-Pagan algorithm placed the peak in February 2014,
thus the last phase of expansion lasted eight months and the economy entered a recession phase.

However, it is worth emphasizing here once again that the amplitudes of the last two
phases of the cycle are very small, and therefore the researcher can draw different conclusions. For
example, it can be assumed that instead of the last three turning points in 2012–2014. there was
only one - the peak of activity, and to place it either in October 2012 or in February 2014.In the first
case, this implies that the growth in the second half of 2013 was too low to characterize this period
as a phase expansion, in the second case, on the contrary, this implies that the drop in production
in late 2012 - early 2013 was insufficient to characterize this period as a phase of recession.
2015 HSE ECONOMIC JOURNAL 565

Final dating after applying the sensory

rule

For the final dating of the cycle in each of the studied variables and the dating of the
"reference cycle", we used the sensory rule proposed by Mönsch and Uhlig. In short, his idea is to
cut off turning points and their corresponding phases, which are both "too short" and "too soft" at
the same time. The Critical Barrier to Cutoff The Menshe Uhlig suggests choosing amplitude and
duration values equal to the difference between the mean and one standard deviation of both.

Application of this rule showed that the phase of expansion we found in the second half of
2013 does not meet this criterion for most variables (GDP minus exports of the fuel and energy
complex for quarterly data, employment, unemployment, freight turnover, production index in the
manufacturing industry for monthly indicators, and also for the main component of monthly data),
in which the Harding-Peygan algorithm shows its presence. It should be noted that the results of
applying the sensory rule are in good agreement with the results obtained using the Markov
regression according to the Hamilton - Chave method, which also did not show a break in activity in
mid-2013.Thus, as the last found turning point in these series, we identify the peak at the end of
2012, after which the Russian economy found itself in recession. Finally, we dated the "reference
cycle" after applying the sensory rule using the nonparametric Harding-Pagan algorithm. Table 5
shows the final results of dating the business cycle in the Russian economy, obtained in our study.

Table 5.
Dating the Russian business cycle
(monthly data)

Bottom Peak Bottom Peak Bottom Peak Bottom Peak

Base Index Sep 98 Apr 08 Apr 09 July 12 Feb.13 November 13

Investments Sep 98 Apr 08 Aug 09 July 12

Employment Aug 98 Aug 02 Feb.03 May.08 May.09 June 12

Unemployment Feb.99 Aug 02 Feb.03 May.08 May.09 Feb.13

Industry Sep 98 March.08 Feb 09 Sep 12

Processing
industry* March.08 Feb 09 Sep 12

Transport Aug 98 Apr 08 May.09 Sep 12

Building Apr 08 Dec 09 Oct 12

the main
component Sep 98 Apr 08 Apr 09 Dec 12

Reference
cycle Oct 98 Apr 08 May.09 Sep.12
* Manufacturing data starts in 2001, so the bottom in 1998 is not included.
566 HSE ECONOMIC JOURNAL No. 4

Dating the growth cycle in the Russian Federation

Another approach by economists to dating the business cycle is based on the concept of the
growth cycle. In this method, the cycle is distinguished not in the dynamics of the level of a
particular variable, but in the dynamics of the indicator, which is called its gap. In this context, a
gap is understood as the deviation of the actual value of the indicator from its “potential” value, i.e.
a value that corresponds to the current level of the number and productivity of factors of
production and which would be if there were no imperfections in the markets for goods, factors
and the financial market.

Plotting gaps for used monthly indicators

To date growth cycles, we used the same monthly indicators that were used to date the
classic cycle: the index of output of goods and services by basic types of economic activity,
investment in fixed assets, total employment, unemployment, industrial production,
manufacturing output, commercial freight turnover of transport and the amount of work
performed in construction. We also used quarterly data on GDP dynamics from national accounts
statistics and the GDP indicator we constructed excluding exports of fuel and energy products.

To divide the dynamics of indicators into potential level and gap, we used the method of
unobservable components. His idea is to assume that all long-term dynamics should be taken into
account in the potential level, while short-term deviations from it are in the gap. In other words, it
is assumed that the potential level is described by a non-stationary random process, in which
shocks have a permanent effect, and a gap - by a stationary process, where the effect of shocks
decays with time to zero.

In more detail, we assumed that the variables we are considering can be divided into two
components as follows:

(2) zt = nt + ct,
(3) nt = d + nt-1 + εt,
(3) ct = ρonect-1 +ρ2ct-2 + υt,

Where zt - the logarithm of the variable under consideration; nt - its potential level; ct - gap. Here
we assume that the potential level follows a random walk with a shiftd, which characterizes the
long-term growth rate of the variable, and the gap is second-order stationary autoregression.
Permanent shocks
are described by a random variable εt, and temporary shocks - by a random variable υt.
We assume that both of these quantities are normally distributed with zero mathematical
expectation and independently of each other and in time.
For each of the considered variables, we estimated such a model of unobservable
components using the Kalman filter and the maximum likelihood method.
2015 HSE ECONOMIC JOURNAL 567

Results obtained
using the Harding-Pagan algorithm

Similarly to the situation with the dating of the classical cycle, we applied the Harding-Pagan
algorithm for the indicators of the gaps of the variables we were considering obtained at the
previous stage: the index for basic types of economic activity, investment in fixed assets,
employment, the index of industrial production, the index of production in the manufacturing
industry, and commercial freight turnover. transport and scope of work by type of activity
"construction". We did not identify a gap in the dynamics of unemployment, since this variable
does not have a trend, but is cyclical around a certain value called the natural rate of
unemployment, and, accordingly, dividing its dynamics into a trend and a gap seems unnecessary.

At the first stage of the algorithm application, in order to cut off high-frequency fluctuations
that are not related to the dynamics of the business cycle, the search for inflection points is
performed in the smoothed data. We carry out smoothing by constructing moving averages with a
window of 12 and 6 months, as well as by constructing a Hodrick-Prescott filter with a parameter λ
equal to 125. You can see that in all variables there is the lowest point of the cycle (bottom) at the
turn of 1998– 1999, after which the economy began to grow due to the devaluation of the ruble in
August 1998 and a sharp rise in world energy prices. In all indicators, except for transport, growth
continued until the end of 2001, giving way to a recession in the first half of 2002. Once again, it
should be noted that here we are studying a growth cycle, and therefore, a recession in this case
does not mean an actual decline. and the decline in growth rates is lower than the long-term
growth rate of the indicator of the “potential” component of the variable. It should be noted that
the slowdown in 2002 was also revealed when studying the classic cycle in variables reflecting the
dynamics of the labor market - employment and unemployment. It can be noted that the most
likely reason for the slowdown was the decline in oil and gas prices in the second half of 2001. The
next phase of the cycle lasted for about two years, in mid-2004, in most of the observed variables
(excluding investments and the index of production in the manufacturing industry) began
recession that lasted until the end of 2004. This recession can be associated with instability in the
financial market and in the banking sector in 2004. The next phase of growth took place until the
beginning of 2008, after which the economy entered a recession, caused by the global financial
crisis and a sharp drop in oil prices. The recession continued until mid-2009, then all the variables
under consideration entered the growth phase. At the beginning of 2012, the development of the
economy slowed down, and after that it moved to a plateau or even into negative dynamics, and
the economy reached a state of recession in terms of dating the growth cycle, which it is still in. It
can be noted that the inflection points obtained by us for the classical cycle have the corresponding
fracture points and for the growth cycle, which are in the immediate vicinity. However, when dating
the growth cycle, we identified two additional peaks - in late 2001 and mid-2004.This means that
around these points in time the economy did not go into a recession, but at the same time, its
growth slowed down sufficiently to ensure that to highlight the recession in the growth cycle. It is
also worth noting the fact that all the variables we are considering have synchronicity, their
breakpoints are in clusters. The exception is three episodes: the absence of a fracture in dynamics
568 HSE ECONOMIC JOURNAL No. 4

turnover of transport at the turn of 2001-2002. and in the dynamics of investment and the index of
production in the manufacturing industry in mid-2004. This synchronicity allows us to identify the
resulting turning points precisely as turning points in the general cycle of economic activity.

At the next stage, we will detail the obtained approximate breakpoints on unsmoothed data
series. To do this, each time we select the actual inflection point in the vicinity of the approximate
point obtained in the previous step. Table 7 and 8 show the results of the final dating for each
indicator we are considering, along with the main characteristics of the cycle: the average duration,
the amplitude of each phase and the average annual rate of change of the indicator.

In conclusion, based on the found breakpoints in each of the indicators under consideration
and using the nonparametric Harding-Peygan method, we date the reference cycle, i.e. we find
uniform turning points for all economic activity in the Russian Federation. The essence of the
method is to find a point, which, in a sense, is in the center of a cluster of turning points for
individual time series. In more detail, first, for each moment in time, a time interval is found to the
next day or peak (for dating the bottoms and peaks, respectively) for each studied variable. Then,
for each moment in time, the median of these values is found, and the moment at which it
reaches a minimum is chosen as the turning point.

As a result of applying the algorithm, we have identified the following turning points of
economic activity. We found the first bottom in October 1998, and the peak in November 2001, the
cycle ended in June 2002 and was 43 months, the recession phase was 7 months, and the growth
phase was 9 months. The next cycle lasted until January 2005 with a peak in June 2004, it was 31
months, of which the recession lasted 7 months, and the rise - 24 months. The next cycle lasted
until May 2009, its peak was in March 2008, it lasted 52 months, the recession lasted 14 months,
and the economic recovery - 38 months. The last turning point we found in the growth cycle was
the peak in January 2012, the recovery phase lasted 42 months, and the economy went into
recession, which is still in it.
You can notice the correspondence between the turning points we found for the classical
cycle and the points in the growth cycle: in the vicinity of each of the points for the classical cycle
there is a bottom or peak and for the growth cycle. This is not surprising - a break in the level of
activity is always associated with a break in the dynamics of a trend-cleared indicator. However, the
opposite is not true: a break in the gap dynamics does not always correspond to a break in the level
dynamics, a slowdown below the average long-term growth rate without recession gives a turning
point in the growth cycle, but not in the classic cycle. These points correspond to the peaks in
November 2001 and June 2004 and the subsequent recessions in the growth cycle that lasted 7
months.
It is also worth noting the fact that the turning points we found in the growth cycle can be
correlated with events that led to a slowdown, and in some cases, a decline in the economy. At the
end of 2001, it was a drop in world prices for energy resources, in mid-2004 - the banking and
financial crises in Russia, in early 2008 - the global financial crisis.
2015 HSE ECONOMIC JOURNAL 569

Table 6.
Dating the Russian business growth cycle
(smoothed monthly data)

Bottom Peak Bottom Peak Bottom Peak Bottom Peak

Base Index Dec 98 Sep 01 May.02 June.04 Apr 05 Feb 08 set 09 Jan 12

Investments Feb.99 Dec 01 Jul.02 Apr 08 Jan 10 Apr 12

Employment Feb.99 July.00 June 01 Jul.02 March.03 Jul.07 Oct 09 June 12

Industry Nov. 98 Sep 00 Apr 02 July 04 Apr 05 november.07 Aug 09 July 11

Processing
industry Feb 01 June.02 november.07 June.09 November 14

Transport March.00 Sep 00 July 04 March 07 Dec 07 Apr 09 Feb 12

Building November.99 November 01 Aug 02 May.04 Dec 04 Apr 08 Apr 10 Sep 11

the main
component November 98 November 01 June.02 June.04 Jan 05 Feb 08 Aug 09 Jan 12

Table 7.
Dating the Russian business growth cycle
(unsmoothed monthly data)

Bottom Peak Bottom Peak Bottom Peak Bottom Peak

Base Index Oct 98 Sep 01 March 02 Apr 04 March 05 Apr 08 June.09 Dec 11

Investments Jan 99 November 01 June.02 Apr 08 november.09 Apr 12

Employment Sep 98 May.00 Feb 01 Aug 02 May.03 March 07 June.09 May 12

Industry Oct 98 Sep 00 May.02 May.04 november.04 Feb 08 March 09 June 11

Processing
industry Dec 01 June.02 Feb 08 Feb 09 Jan 12

Transport June.99 Aug 04 Feb 05 Feb 08 May.09 Jan 12

Building Dec 99 November 01 May.02 May.04 Dec 04 Apr 08 Apr 10 Sep 11

the main
component Jan 99 November 01 May.02 June.04 Dec 04 Apr 08 Aug 09 Jan 12

Reference
cycle Oct 98 November 01 June.02 June.04 Jan 05 March.08 May.09 Jan 12
570 HSE ECONOMIC JOURNAL No. 4

Table 8.
Dating Russian business growth cycle (unsmoothed monthly
data, averages)

Average duration Average amplitude,%

recession lifting recession lifting

Base Index 10 32 - 4.70 5.60

Investments 13 44 - 18.40 31.10

Employment fifteen thirty - 2.30 2.00

Industry 13 28 - 8.60 9.30

Processing
industry nine 47 * - 12.80 10.80

Transport eleven 43 - 10.30 8.40

Building 12 26 - 15.80 15.00

Main component

Reference cycle nine 33

* Manufacturing data starts in 2001, so the bottom in 1998 is not included.

Results obtained with

the Hamilton-Chave algorithm

In conclusion, we also dated the growth cycle for the constructed variable gaps of the
monthly data we studied using the Hamilton - Chaveau Markov regression method. In short, the
essence of the method consists in regression of the growth rate of a variable into a constant and a
possible autoregressive component, which allows Markov switching in a constant under the
assumption that the Markov chain consists of two possible states. This regression can be
interpreted as follows: in the case when the average value of the growth rate in one state (the
obtained estimate of the coefficient) is negative, and in the other - positive, it is natural to call the
situation in the first state a recession, and in the second - expansion. Markov regression allows you
to estimate the probabilities of being in each state at each moment of time and therefore, by
choosing an appropriate threshold value of this probability,

When dating the classical cycle, we were able to estimate the Markov regression for all the
indicators we studied. However, with a similar dating of the indicators gaps we obtained, we were
able to estimate acceptable equations for only four of the seven variables we were considering: the
output index by basic types of economic activity, investment in fixed assets, employment, and the
volume of work.
2015 HSE ECONOMIC JOURNAL 571

bot in construction. Estimates for indicators in industry and transport turned out to be
unsuccessful: the significance and often the signs of the obtained coefficients were unsatisfactory.
Below is a graph of one of the macroeconomic indicators we are considering, along with the
resulting dating. The solid line shows the phase of the cycle, built according to the Harding-Pagan
algorithm (1 for the expansion phase, 0 for the recession phase), the dashed line is the probability
of being in the expansion phase for those variables where it was possible to estimate the
regression with Markov switching. You can see that for all four variables where we were able to do
this, both dating methods give very similar results, which leads to the idea that

Note: long dotted line - index of basic economic activity (logarithm), short dotted line - probability of being in a
phase of recovery, solid line - being in one or another phase of the cycle (0 - recession, 1 - recovery).

Fig. 3.Dating the index growth cycle

by basic types of economic activity

Conclusion

The presented work is devoted to the dating of the Russian business cycle, i.e. the search for
turning points in the level of economic activity, where the phase of economic growth is replaced by
a phase of its contraction (peaks) and vice versa (bottom). The paper outlines the main dating
approaches that are used to date the cycle of economic activity in the Russian Federation.

The fundamental quantitative results of this work are;

• the obtained turning points for all the indicators we are considering, namely, quarterly
data of the system of national accounts, including GDP; GDP excluding exports of fuel and energy
products, which can be interpreted
572 HSE ECONOMIC JOURNAL No. 4

as an indicator of economic activity, cleared of the direct impact of the conjuncture of world oil
prices; accumulation of fixed assets, as well as monthly data on the dynamics of the main sectors of
the economy, including the labor market, industry in general, manufacturing, transport and
construction;
• the obtained pivot points for the "reference cycle". These points can be viewed as
turning points in the cycle of economic activity in the Russian Federation, which is the main result
of the study;
• From the point of view of applied significance, our study suggests that the Russian
economy has been in a recession phase since the 4th quarter of 2012. Although this recession is
very mild in amplitude and is incomparable with the 2008-2009 recession, its duration has already
reached almost two years, which is a serious challenge for the economic policy pursued in the
Russian Federation.

application

Construction of the real GDP index,

cleared of energy exports

We used data from Rosstat and the Bank of Russia on the volume and cost of ex-
port of crude oil, gas and oil products VolOil (t), VolGas (t), VolOP (t), ValOil (t),
ValGas (t), ValOP (t). Volume data are provided in US dollars, we have translated
whether they are in rubles, multiplying by the average for the period of the US dollar.
Further, for each period, we build the export values in the prices of the previous
period:

ValOil (t -one)
(five) =
ValOil2 (t) VolOil (t) ,
VolOil (t -one)
ValGas (t -one)
(6) =
ValGas2 (t) VolGas (t) ,
VolGas (t -one)
ValOP (t -one)
(7) ValOP2 (t) = VolOP (t) ...
VolOP (t -one)

To construct data on the cost of GDP in the prices of the previous period Y 2 (t)
we used Rosstat data on the growth rate of real GDP gY (t):

(eight) Y 2 (t) = Y (t -1) (1+ gY (t)),

where is the variable Y (t) denotes nominal GDP (Rosstat).

2015 HSE ECONOMIC JOURNAL 573

Next, we build the GDP growth rates without energy exports gY (t) following
way:

Y 2 (t) -ValOil2 (t ) - ValGas2 (t) -ValOP2 (t)

(nine) gY (t) = ...
Y (t one)
- - ValOil (t one)
- - ValGas (t one)
- - ValOP (t one)-

We then build a chain index of real GDP without energy exports Y (t)
as
t
(10) Y (t) = [Y (t0)-ValOil (t0) -ValGas (t0) -ValOP (t0)]∏ (1+ gY (i)).
i = t0 +one

We used the resulting variable as an indicator of real GDP without ex-

port of energy resources.

∗∗
∗
BIBLIOGRAPHY

Bry G., Boschan C. Cyclical Analysis of Time Series: Selected Procedures and Computer Programs. New
York: NBER, Columbia University Press, 1971.
Burns AF, Mitchell CM Measuring Business Cycles. New York: National Bureau of Economic
Research, 1946.
Chauve M., Hamilton JD Dating Business Cycle Turning Points: Working Paper. NBER, 2005. No.
11422.
Hamilton jd A New Approach to the Economic Analysis of Nonstationary Time Series and the
Business Cycle // Econometrica. 1989. Vol. 57. No. 2. P. 357-384.
Harding D., Pagan A. Dissecting the Cycle: A Methodological Investigation // Journal of
Monetary Economics. 2002.49.
Harding D., Pagan A. Synchronization of Cycles // Journal of Econometrics. 2006. No. 132. P. 59–79.
Thorp WL Business Annals. New York: NBER, 1926.
574 HSE Economic Journal #4

Dating of the Russian Business Cycle

Dubovskiy Dmitryone, Kofanov Dmitry2, Sosunov Kiril3

one Russian Presidential Academy of National Economy and Public Administration,

82, Vernadskogo prosp., Moscow, 119571, Russian Federation.
E-mail: Dmitry.dubovskiy@gmail.com

2 University of Wisconsin, William

H. Sewell Social Science Building
1180 Observatory Drive Madison, WI 53706-1393 USA.
E-mail: kofanov@wisc.edu

3 National Research University Higher School of Economics,

31, Shabolovka st., Moscow, 119049, Russian Federation.
E-mail: ksosunov@gmail.com

In this paper we use standard methods and construct our own methodology of dating
business cycle in the Russian economy in post-soviet era starting from the middle of the 1990-ies.
The main purpose of this paper is identification and dating of business cycles in the Russian
economy during the last fifteen years. We use dating approaches of Harding - Pagan and Hamilton
as a benchmark. This way we found turning points of the reference cycle starting from the second
half of 1990-ies. It worth noting that both methods give very similar results. As a primary data in
out analysis we used data on national accounts from Rosstat. We also use various data from
Archive of Economic and Sociological Data of NRU-HSE. Our main finding is that during 1998–2014
the Russian economy went through two full business cycles with trough sin October, 1998 and May,
2009 and peaks in April, 2008 and September, 2012. Starting from that month the Russian economy
stopped exhibiting growth and first went into stagnation period and then into deep recession from
the beginning of 2015. In this paper we also date the growth cycles for the Russian economy. Our
main finding is that in this case we found two more recessions in the growth cycle framework: from
November, 2001 until June, 2002 and June, 2004 until January, 2005. The last recession in the
growth cycle started in January, 2012.

Key words: macroeconomics; business cycles theory; dating of the business cycle; business
cycle turning points; macroeconomic statistics; Russian economy.

JEL Classification: E01, E32.

2015 HSE Economic Journal 575

∗∗
∗
References

Bry G., Boschan C. (1971) Cyclical Analysis of Time Series: Selected Procedures and Computer
Programs. New York: NBER, Columbia University Press.
Burns AF, Mitchell CM (1946) Measuring Business Cycles. New York: National Bureau of Economic
Research.
Chauve M., Hamilton JD (2005) Dating Business Cycle Turning Points: Working Paper. NBER. no
11422.
Hamilton JD (1989) A New Approach to the Economic Analysis of Nonstationary Time Series and
the Business Cycle. Econometrica, 57, 2, pp. 357-384.
Harding D., Pagan A. (2002) Dissecting the Cycle: A Methodological Investigation. Journal of
Monetary Economics, 49.
Harding D., Pagan A. (2006) Synchronization of Cycles. Journal of Econometrics, 132, pp. 59-79.
ThorpW.L. (1926)Business Annals. New York: NBER.