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Evaluating non-structural measures of the business cycle

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  • Timothy Cogley

Abstract

This paper evaluates a number of non-structural measures of the business cycle. It adopts a structural definition of the cycle, interprets non-structural measures as noisy approximations, and seeks a proxy that is reliable across a variety of plausible trend-cycle structures. The results favor a consumption-based measure proposed by Cochrane (1994). Across a variety of structures, it has the highest correlation and coherence with structural cycles, and best matches their dynamic properties. When applied to U.S. data, consumption-based measures conform closely to the dates of NBER recessions. They also yield a strong negative correlation between the cyclical components of productivity and hours, a fact that deepens the challenge to models which emphasize technology shocks as the primary source of business cycles.

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Bibliographic Info

Article provided by Federal Reserve Bank of San Francisco in its journal Economic Review.

Volume (Year): (1997)
Issue (Month): ()
Pages: 3-21

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Handle: RePEc:fip:fedfer:y:1997:p:3-21:n:3

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Keywords: Business cycles;

References

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  1. Marianne Baxter & Robert G. King, 1999. "Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 575-593, November.
  2. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
  3. Cogley, T., 1989. "International Evidence On The Size Of The Random Walk In Output," Working Papers 89-02, University of Washington, Department of Economics.
  4. Danny Quah, 1991. "The Relative Importance of Permanent and Transitory Components: Identification and Some Theoretical Bounds," FMG Discussion Papers dp126, Financial Markets Group.
  5. Jon Faust & Eric M. Leeper, 1994. "When do long-run identifying restrictions give reliable results?," Working Paper 94-2, Federal Reserve Bank of Atlanta.
  6. George Evans & Lucrezia Reichlin, 1994. "Information, forecasts and measurement of the business cycle," ULB Institutional Repository 2013/10155, ULB -- Universite Libre de Bruxelles.
  7. Romer, Christina D., 1994. "Remeasuring Business Cycles," The Journal of Economic History, Cambridge University Press, vol. 54(03), pages 573-609, September.
  8. Marco Lippi & Lucrezia Reichlin, 1994. "Diffusion of technical change and the decomposition of output into trend and cycle," ULB Institutional Repository 2013/10157, ULB -- Universite Libre de Bruxelles.
  9. Francis X. Diebold & Glenn D. Rudebusch, 1988. "A nonparametric investigation of duration dependence in the American business cycle," Working Paper Series / Economic Activity Section 90, Board of Governors of the Federal Reserve System (U.S.).
  10. Beveridge, Stephen & Nelson, Charles R., 1981. "A new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the `business cycle'," Journal of Monetary Economics, Elsevier, vol. 7(2), pages 151-174.
  11. Orazio P. Attanasio & Guglielmo Weber, 1994. "Is Consumption Growth Consistent with Intertemporal Optimization? Evidence from the Consumer Expenditure Survey," NBER Working Papers 4795, National Bureau of Economic Research, Inc.
  12. Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1.
  13. Shea, John, 1995. "Union Contracts and the Life-Cycle/Permanent-Income Hypothesis," American Economic Review, American Economic Association, vol. 85(1), pages 186-200, March.
  14. Lawrence J. Christiano, 1988. "Searching For a Break in GNP," NBER Working Papers 2695, National Bureau of Economic Research, Inc.
  15. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
  16. Robert J. Gordon, 1980. "The "End-of-Expansion" Phenomenon in Short-run Productivity Behavior," NBER Working Papers 0427, National Bureau of Economic Research, Inc.
  17. King, R.G. & Rebelo, S.T., 1989. "Low Frequency Filtering And Real Business Cycles," RCER Working Papers 205, University of Rochester - Center for Economic Research (RCER).
  18. Prescott, Edward C., 1986. "Theory ahead of business-cycle measurement," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 11-44, January.
  19. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 1993. "Labor Hoarding and the Business Cycle," NBER Working Papers 3556, National Bureau of Economic Research, Inc.
  20. Harvey, A C & Jaeger, A, 1993. "Detrending, Stylized Facts and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(3), pages 231-47, July-Sept.
  21. Nelson, Charles R & Kang, Heejoon, 1979. "Spurious Periodicity in Inappropriately Detrended Time Series," The Warwick Economics Research Paper Series (TWERPS) 161, University of Warwick, Department of Economics.
  22. Meghir, Costas & Weber, Guglielmo, 1996. "Intertemporal Nonseparability or Borrowing Restrictions? A Disaggregate Analysis Using a U.S. Consumption Panel," Econometrica, Econometric Society, vol. 64(5), pages 1151-81, September.
  23. Cochrane, John H, 1994. "Permanent and Transitory Components of GNP and Stock Prices," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 241-65, February.
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Citations

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Cited by:
  1. Kivilcim Metin-Ozcan & Ebru Voyvoda & A. Erinc Yeldan, 2000. "Dynamics of Macroeconomic Adjustment in a Globalized Developing Economy: Growth, Accumulation and Distribution, Turkey 1969-1998," Working Papers 2004, Economic Research Forum, revised Feb 2000.
  2. Alain Guay & Pierre St-Amant, 1997. "Do the Hodrick-Prescott and Baxter-King Filters Provide a Good Approximation of Business Cycles?," Cahiers de recherche CREFE / CREFE Working Papers 53, CREFE, Université du Québec à Montréal.
  3. St-Amant, P. & Tessier, D., 1998. "A Discussion of the Reliability of Results Obtained with Long-Run Identifying Restrictions," Working Papers 98-4, Bank of Canada.
  4. Fischer, Andreas & Michael J Dueker & Robert D Dittmar, 2003. "Stochastic Capital Depreciation and the Comovement of Hours and Productivity," Royal Economic Society Annual Conference 2003 80, Royal Economic Society.
  5. Timothy Cogley & Desiree Schaan, 1995. "Using consumption to track movements in trend GDP," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue sep1.
  6. Luca Benati, 2001. "Band-pass filtering, cointegration, and business cycle analysis," Bank of England working papers 142, Bank of England.
  7. P J Pérez, 2001. "Cyclical Properties in the Main Western Economies," Centre for Growth and Business Cycle Research Discussion Paper Series 33, Economics, The Univeristy of Manchester.
  8. Ozbek, Levent & Ozlale, Umit, 2005. "Employing the extended Kalman filter in measuring the output gap," Journal of Economic Dynamics and Control, Elsevier, vol. 29(9), pages 1611-1622, September.
  9. St-Amant, P. & van Norden, S., 1997. "Measurement of the Output Gap: A Discussion of Recent Research at the Bank of Canada," Technical Reports 79, Bank of Canada.
  10. Guay, A & St-Amant, P, 1996. "Do Mechanical Filters Provide a Good Approximation of Business Cycles?," Working Papers-Department of Finance Canada 1996-2, Department of Finance Canada.
  11. Chantal Dupasquier & Alain Guay & Pierre St-Amant, 1997. "A Comparison of Alternative Methodologies for Estimating Potential Output and the Output Gap," Working Papers 97-5, Bank of Canada.
  12. Odile Chagny & Jörg Döpke, 2001. "Measures of the Output Gap in the Euro-Zone: An Empirical Assessment of Selected Methods," Kiel Working Papers 1053, Kiel Institute for the World Economy.
  13. Ozlale, Umit, 2003. "Price stability vs. output stability: tales of federal reserve administrations," Journal of Economic Dynamics and Control, Elsevier, vol. 27(9), pages 1595-1610, July.
  14. Lalonde, René, 1998. "Le PIB potentiel des États-Unis et ses déterminants : la productivité de la main-d'oeuvre et le taux d'activité," Working Papers 98-13, Bank of Canada.
  15. John P. Judd & Glenn D. Rudebusch, 1998. "Taylor's rule and the Fed, 1970-1997," Economic Review, Federal Reserve Bank of San Francisco, pages 3-16.

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