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# _Identification of recoveries_

In defining and identifying credit-less recoveries, this paper uses a method similar to what Abiad _et al_ . (2011) employ. First, it identifies troughs and their corresponding preceding peaks in real GDP using a quarterly data series. Troughs are indentified based on developments in the cyclical component of GDP, which is defined as the difference between the log of real GDP and trend (smoothed) GDP; the latter is computed by using the Hodrick-Prescott (HP) filter (Hodrick and Prescott, 1997).<sup>4</sup> For each country, data points where the cyclical component of GDP is below a negative one standard deviation are considered as troughs. To avoid what could be referred to as “double dip” episodes, this paper requires that there are at least eight quarters in between troughs. If two or more troughs are identified within eight quarters or less from each other, the one with the lowest cyclical component is chosen to date the trough of a recession. Similarly, the first and the last four quarters of the data for each country are excluded from the identification of troughs to ensure that enough time exists to categorize the recovery that follows as either a credit-with or a credit-less event. Once troughs are identified, the corresponding peaks are determined. Peaks are also defined by the cyclical component of GDP. A peak is simply the highest value between two troughs or, in the case of the first (or earliest) trough in each country, the highest cyclical component prior to the first trough. Every trough is recorded in our sample together with its corresponding peak information.

As discussed at the beginning of this section, this paper uses quarterly GDP to identify economic downturns. The data are taken from line 99B of the International Financial Statistics (IFS) of the IMF; where the quarterly data is not available in IFS this study uses the OECD Quarterly National Accounts Statistics, the database provided by the United Nations Economic Commission for Europe (UNECE), Haver Analytics, Datastream, or data from national statistical offices. As a result, the quarterly GDP data are available for 96 countries and, at most, the data is available for the period 1965Q1–2011Q4; i.e., inevitably, ours is an unbalanced panel as a result of the large differences in data availability.<sup>5</sup> Based on this methodology, this paper identifies a total of 272 peak-trough combinations (i.e., recovery episodes), which in turn can be divided into 105 episodes for advanced economies, 113 for emerging markets, and 54 cases other developing and offshore countries (Annex Table 1). The top two panels of Figure 1 present one example of the methodology followed in this paper; they show the real and cyclical GDP for Argentina. As per the above description, two recessions are identified and the corresponding dates for each trough are 1995Q3 and 2002Q1. Furthermore, the peak dates are found to be 1994Q1 and 1998Q2 for the former and latter case. Peak-to-trough periods are expressed as two shaded areas in light gray in Figure 1.

> 4 The smoothing parameter is 1,600.  Filtering is done with seasonally-adjusted real GDP data.  For countries where seasonallyadjusted data are not available, the X-12-ARIMA program obtained from the web site of the U.S. Census Bureau is used to adjust the series.  For details on the program, refer to U.S. Census Bureau (2011).

> 5 There are several countries where the data on GDP deflator are unavailable or incomplete.  In such cases, consumer price index (CPI) is used as a price deflator, instead.  Also, annual GDP deflator is used to deflate the quarterly GDP data in Uzbekistan.