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Title: Three states of the French business cycle Authors:  Anna Petronevich - Bank of France (France) [presenting]
Catherine Doz - Paris School of Economics (France)
Abstract: The aim is to infer the current state of the French business cycle and nowcast the French GDP using Markov Switching Dynamic Factor Model. The multifactor model is estimated on a large database of macroeconomic series. We show that the first factor approximates the French business cycle and is best described as having three states - expansion, mild recession and severe recession, with severe recessions characterized as sharp but brief deterioration of the economic situation. The resulting smoothed probabilities provide a timely dating of past French business cycles and detect well the waves of the Covid-19 crisis. Additionally, we find that the second factor describes the global business cycle. We observe that global recessions often spill over on the French economy in recent history, illustrating the high integration of France into the world economy. Incorporating the two factors into the nowcasting equation allows producing accurate nowcasts of the French GDP.