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The economic performance of cities: a Markov-switching approach

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  • Michael T. Owyang
  • Jeremy M. Piger
  • Howard J. Wall
  • Christopher H. Wheeler

Abstract

This paper examines the determinants of employment growth in metro areas. To obtain growth rates, we use a Markov-switching model that separates a city’s growth path into two distinct phases (high and low), each with its own growth rate. The simple average growth rate over some period is, therefore, the weighted average of the high-phase and low-phase growth rates, with the weight being the frequency of the two phases. We estimate the effects of a variety of factors separately for the high-phase and low-phase growth rates, along with the frequency of the low phase. We find that growth in the high phase is related to human capital, industry mix, and average firm size. In contrast, we find that growth in the low phase is mostly related to industry mix, specifically, the relative importance of manufacturing. Finally, the frequency of the low phase appears to be related to the level of non-education human capital, but to none of the other variables. Overall, our results strongly reject the notion that city-level characteristics influence employment growth equally across the phases of the business cycle.

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2006-056.

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Date of creation: 2007
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Publication status: Published in Journal of Urban Economics, November 2008, 64(3), pp. 538-50
Handle: RePEc:fip:fedlwp:2006-056

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Keywords: Business cycles ; Cities and towns;

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  1. Harding, Don & Pagan, Adrian, 2006. "Synchronization of cycles," Journal of Econometrics, Elsevier, vol. 132(1), pages 59-79, May.
  2. Michael T. Owyang & Jeremy Piger & Howard J. Wall & Federal Reserve Bank of St. Louis, 2006. "A State-Level Analysis of the Great Moderation," Computing in Economics and Finance 2006 131, Society for Computational Economics.
  3. Gabriel Perez-Quiros & Margaret M. McConnell, 2000. "Output Fluctuations in the United States: What Has Changed since the Early 1980's?," American Economic Review, American Economic Association, vol. 90(5), pages 1464-1476, December.
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  7. Engelhardt, Gary V., 2003. "Nominal loss aversion, housing equity constraints, and household mobility: evidence from the United States," Journal of Urban Economics, Elsevier, vol. 53(1), pages 171-195, January.
  8. Diebold & Rudebusch, . "Measuring Business Cycle: A Modern Perspective," Home Pages _061, University of Pennsylvania.
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  17. Edward L. Glaeser, 2005. "Urban colossus: why is New York America's largest city?," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 7-24.
  18. Michael T. Owyang & Jeremy M. Piger & Howard J. Wall, 2004. "Business cycle phases in U.S. states," Working Papers 2003-011, Federal Reserve Bank of St. Louis.
  19. Antonio Ciccone & Robert E. Hall, 1995. "Productivity and the density of economic activity," Economics Working Papers 120, Department of Economics and Business, Universitat Pompeu Fabra.
  20. Henderson, Vernon & Kuncoro, Ari & Turner, Matt, 1995. "Industrial Development in Cities," Journal of Political Economy, University of Chicago Press, vol. 103(5), pages 1067-90, October.
  21. Chang-Jin Kim & Charles R. Nelson, 1998. "Business Cycle Turning Points, A New Coincident Index, And Tests Of Duration Dependence Based On A Dynamic Factor Model With Regime Switching," The Review of Economics and Statistics, MIT Press, vol. 80(2), pages 188-201, May.
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  23. Chang-Jin Kim & Charles R. Nelson, 1999. "Has The U.S. Economy Become More Stable? A Bayesian Approach Based On A Markov-Switching Model Of The Business Cycle," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 608-616, November.
  24. Albert, James H & Chib, Siddhartha, 1993. "Bayes Inference via Gibbs Sampling of Autoregressive Time Series Subject to Markov Mean and Variance Shifts," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(1), pages 1-15, January.
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Citations

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Cited by:
  1. James D. Hamilton & Michael T. Owyang, 2011. "The Propagation of Regional Recessions," NBER Working Papers 16657, National Bureau of Economic Research, Inc.
  2. Francis Neville & Owyang Michael T. & Sekhposyan Tatevik, 2012. "The Local Effects of Monetary Policy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(2), pages 1-38, March.
  3. Andra C. Ghent & Michael T. Owyang, 2009. "Is housing the business cycle? evidence from U.S. cities," Working Papers 2009-007, Federal Reserve Bank of St. Louis.
  4. Owyang, Michael T. & Piger, Jeremy & Wall, Howard J., 2010. "Discordant city employment cycles," MPRA Paper 30757, University Library of Munich, Germany.
  5. Rubén Hernández-Murillo & Michael T. Owyang & Margarita Rubio, 2013. "Clustered housing cycles," Working Papers 2013-021, Federal Reserve Bank of St. Louis.
    • Rubén Hernández-Murillo & Michael T Owyang & Margarita Rubio, 2013. "Clustered Housing Cycles," Discussion Papers 2013/02, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  6. Wall, Howard J., 2013. "The employment cycles of neighboring cities," Regional Science and Urban Economics, Elsevier, vol. 43(1), pages 177-185.
  7. Kristie M. Engemann & Rubén Hernández-Murillo & Michael T. Owyang, 2011. "Regional aggregation in forecasting: an application to the Federal Reserve’s Eighth District," Review, Federal Reserve Bank of St. Louis, issue May, pages 207-222.
  8. Leora Friedberg & Michael Owyang & Anthony Webb, 2008. "Identifying Local Differences in Retirement Patterns," Working Papers, Center for Retirement Research at Boston College wp2008-18, Center for Retirement Research, revised Dec 2008.

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