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The U.S. business cycle, 1867-1995: dynamic factor analysis vs. reconstructed national accounts

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  • Albrecht Ritschl
  • Samad Sarferaz
  • Martin Uebele

Abstract

This paper presents insights on U.S. business cycle volatility since 1867 derived from diffusion indices. We employ a Bayesian dynamic factor model to obtain aggregate and sectoral economic activity indices. We find a remarkable increase in volatility across World War I, which is reversed after World War II. While we can generate evidence of postwar moderation relative to pre-1914, this evidence is not robust to structural change, implemented by time-varying factor loadings. We do find evidence of moderation in the nominal series, however, and reproduce the standard result of moderation since the 1980s. Our estimates broadly confirm the NBER historical business cycle chronology as well the National Income and Product Accounts, except for World War II where they support alternative estimates of Kuznets (1952).

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File URL: http://eprints.lse.ac.uk/22305/
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Bibliographic Info

Paper provided by London School of Economics and Political Science, Department of Economic History in its series Economic History Working Papers with number 22305.

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Length: 44 pages
Date of creation: Dec 2008
Date of revision:
Handle: RePEc:ehl:wpaper:22305

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Postal: LSE, Dept. of Economic History Houghton Street London, WC2A 2AE, U.K.
Phone: +44 (0) 20 7955 7084
Web page: http://www.lse.ac.uk/economicHistory/
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  1. Giannone, Domenico & Lenza, Michele & Reichlin, Lucrezia, 2008. "Explaining the Great Moderation: it is not the shocks," Working Paper Series 0865, European Central Bank.
  2. Jordi Galí & Luca Gambetti, 2006. "On the sources of the Great Moderation," Economics Working Papers 1041, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2007.
  3. Joseph H. Davis & Christopher Hanes & Paul W. Rhode, 2009. "Harvests and Business Cycles in Nineteenth-Century America," The Quarterly Journal of Economics, MIT Press, vol. 124(4), pages 1675-1727, November.
  4. Simon Kuznets & Lillian Epstein & Elizabeth Jenks, 1941. "National Income and Its Composition, 1919-1938, Volume I," NBER Books, National Bureau of Economic Research, Inc, number kuzn41-1, May.
  5. Robert J. Gordon, 1986. "The American Business Cycle: Continuity and Change," NBER Books, National Bureau of Economic Research, Inc, number gord86-1, May.
  6. John W. Kendrick, 1961. "Productivity Trends in the United States," NBER Books, National Bureau of Economic Research, Inc, number kend61-1, May.
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Cited by:
  1. Matthias Morys & Martin Ivanov, 2013. "The emergence of a European region: Business cycles in South-East Europe from political independence to World War II," Centre for Historical Economics and Related Research at York (CHERRY) Discussion Papers 13/01, CHERRY, c/o Department of Economics, University of York.
  2. Matthias Morys & Martin Ivanov, 2009. "Common factors in South-East Europe’s business cycles 1899 - 1989," SEEMHN papers 1, National Bank of Serbia.

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