This paper examines global recessions as a cascade phenomenon. In other words, how recessions arising within one or more countries might percolate across a network of connected economies. A heterogeneous agent based model is set up in which the agents are Western economies. A country has a probability of entering recession in any given year and one of emerging from it the next.

In addition, the heterogeneous agents each have a unique threshold propensity to import a recession from the agents most closely connected to them. The agents are connected on a small world topology, and an agent’s neighbours at any time are either in (state 1) or out (state 0) of recession. If the weighted sum exceeds the threshold, the agent also goes into recession.

Annual real GDP growth for 17 Western countries 1871-2006 is used as the data set. The distribution of the number of countries in recession in any given year is exponential. The duration of recessions in the individual countries is also exponential. The model is calibrated against these facts and is able to replicate them. In addition it replicates the distribution of ‘wait time’ between recessions i.e. the number of years between them.

The network structure is essential for the heterogeneous agents to replicate the stylised facts. The country-specific probabilities of entering and emerging from recession by themselves give results very different to the actual data.

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