CAN SOLAR ACTIVITY INFLUENCE THE OCCURRENCE OF ECONOMIC RECESSIONS? Mikhail Gorbanev This paper revisits evidence of solar activity influence on the economy. We examine whether economic recessions occur more often in the years around and after solar maximums. This research strand dates back to late XIX century writings of famous British economist William Stanley Jevons, who claimed that “commercial crises” occur with periodicity matching solar cycle length. Quite surprisingly, our results suggest that the hypothesis linking solar maximums and recessions is well anchored in data and cannot be easily rejected. February 2015 Keywords: business cycle, recession, solar cycle, sunspot, unemployment JEL classification numbers: E32, F44, Q51, Q54 Mikhail Gorbanev is Senior Economist at the International Monetary Fund 700 19th Street, N.W., Washington, D.C. 20431 (e-mail:
[email protected]) Disclaimer: The views expressed in this paper are solely those of the author and do not represent IMF views or policy. The author wishes to thank Professors Francis X. Diebold and Adrian Pagan and IMF seminar participants for their critical comments on the findings that led to this paper. 2 I. INTRODUCTION This paper reviews empirical evidence of the apparent link between cyclical maximums of solar activity and economic crises. An old theory outlined by famous British economist William Stanley Jevons in the 1870s claimed that “commercial crises” occur with periodicity broadly matching the solar cycle length of about 11 years. It is common knowledge that this “beautiful coincidence” claimed by Jevons and its theoretical explanation linking the “commercial crises” to bad harvests did not stand the test and were rejected by subsequent studies.