How would you define a recession quantitatively? Or, more simply, what variables should be shocked in order to simulate a recessionary environment?

There are two sides to the equation, upward and downward cycles. Altogether the cycle is called the business cycle. There exists some research on modelling a business cycle, although it has to be noted that BCs can be very different from each other. Each cycle has it's macroeconomic and political setting. Without knowing to much literature I believe that this is one of the major problems with isolated models. To put in a theoretical context, up to the Great Depression it was thought that fluctuations in the cycle were very minor. After this event, which was a major factor for World War II, it was clear that cycles are a very important phenomena. Keynes was the first to have studied it in breadth, and the branch of economics that stresses the importance of cycles including certain policies is called Keynesian economics.Although there is a mountain of research most broad models fail and most of the predictions from various institutes are more or less worthless. In fact the equity markets, which are more or less a predictor for economic growth, perform quite well, although there is an self-fulfilling prophecy element to it.Variables? Standard macro-economic variables, such as GDP, wages, prices, consumer spending and saving, corporate profits.Good that you ask about simulation, because in economics models are usually or closed-form. Simulations are one of the most important developments in economics, but unfortunately at the same time very demanding. I would say that you will have to know very much about modeling and economics (graduate level) to produce a 'usable' result. In the meantime you can check out this site on Agent-based Economics: http://www.econ.iastate.edu/tesfatsi/ace.htm

If you really want to define, you have to make sure your definition is "operational", that you can measure, For this reason, in the US a recession is defined as a DECLINE in any country's gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year. You can define it in an infine number of different ways, but if you want your analyses to be relevant, you'd probably want to stick with the more accepted assumption

QuoteOriginally posted by: MeyHow would you define a recession quantitatively? Or, more simply, what variables should be shocked in order to simulate a recessionary environment?An economic turndown that comes to fruition because those idiots keep telling us that its coming (present company excluded, of course). Maybe they should just SHUT THE FUCK UP (LOL).

There is no strict definition of the word "recession". In the U.S., there's a recession if a group called "The Business Cycle Dating Committee" at the NBER decides that we're having (or we had) one. Usually, this decision is made well into (or even after) the recession, so it's not all that useful.

QuoteIf you really want to define, you have to make sure your definition is "operational", that you can measure, For this reason, in the US a recession is defined as a DECLINE in any country's gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year. You can define it in an infine number of different ways, but if you want your analyses to be relevant, you'd probably want to stick with the more accepted assumption There is no strict definition of the word "recession". In the U.S., there's a recession if a group called "The Business Cycle Dating Committee" at the NBER decides that we're having (or we had) one. Usually, this decision is made well into (or even after) the recession, so it's not all that useful. The two quarter rule is pretty standard and hence strict. The reason it takes a while to decide is that (a) GDP is published with a lag and (b) revised after publication. The longer it has been published the smaller the likely future revision is; so the error bars shrink with time. Hence unless GDP falls by more than x standard error's it could be a few months / years before we know for sure wether there was a recession or not.

QuoteOriginally posted by: asdfasdfQuoteIf you really want to define, you have to make sure your definition is "operational", that you can measure, For this reason, in the US a recession is defined as a DECLINE in any country's gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year. You can define it in an infine number of different ways, but if you want your analyses to be relevant, you'd probably want to stick with the more accepted assumption There is no strict definition of the word "recession". In the U.S., there's a recession if a group called "The Business Cycle Dating Committee" at the NBER decides that we're having (or we had) one. Usually, this decision is made well into (or even after) the recession, so it's not all that useful. The two quarter rule is pretty standard and hence strict. The reason it takes a while to decide is that (a) GDP is published with a lag and (b) revised after publication. The longer it has been published the smaller the likely future revision is; so the error bars shrink with time. Hence unless GDP falls by more than x standard error's it could be a few months / years before we know for sure wether there was a recession or not.From the NBER website:The NBER does not define a recession in terms of two consecutive quarters of decline in real GDP. Rather, a recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. For more information, see the latest announcement on how the NBER's Business Cycle Dating Committee chooses turning points in the Economy and its latest memo, dated 07/17/03. http://www.nber.org/cycles/cyclesmain.htmlThe main problem with the negative GDP condition is that real GDP growth could be negative even when the economy is booming. For example, a huge inventory drawdown in response to a positive demand shock would do it.