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States and the business cycle

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  • Michael T. Owyang
  • David E. Rapach
  • Howard J. Wall

Abstract

We model the U.S. business cycle using a dynamic factor model that identifies common factors underlying fluctuations in state-level income and employment growth. We find three such common factors, each of which is associated with a set of factor loadings that indicate the extent to which each state’s business cycle is related to the national business cycle. According to the factor loadings, there is a great deal of heterogeneity in the nature of the links between state and national economies. In addition to exhibiting interesting geographic patterns, the factor loadings tend to be related to differences in industry mix. Finally, we find that the common factors tend to explain large proportions of the total variability in state-level business cycles, although there is a great deal of cross-state heterogeneity.

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2007-050.

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Date of creation: 2008
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Publication status: Published in Journal of Urban Economics, March 2009, 65(2), pp. 181-94
Handle: RePEc:fip:fedlwp:2007-050

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Keywords: Business cycles;

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Citations

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Cited by:
  1. Wall, Howard J., 2013. "The employment cycles of neighboring cities," Regional Science and Urban Economics, Elsevier, vol. 43(1), pages 177-185.
  2. Michael Owyang & Jeremy Piger & Howard Wall, 2011. "Discordant City Employment Cycles," ERSA conference papers ersa11p1525, European Regional Science Association.
  3. Chad R. Wilkerson, 2009. "Recession and recovery across the nation: lessons from history," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 5-24.
  4. Rapach, David E. & Strauss, Jack K., 2012. "Forecasting US state-level employment growth: An amalgamation approach," International Journal of Forecasting, Elsevier, vol. 28(2), pages 315-327.
  5. Magnusson, Kristin, 2009. "The Impact of U.S. Regional Business Cycles on Remittances to Latin America," Working Paper Series in Economics and Finance 710, Stockholm School of Economics.
  6. David Shepherd & Robert Dixon, 2010. "The not-so-great moderation? Evidence on changing volatility from Australian regions," Department of Economics - Working Papers Series 1090, The University of Melbourne.
  7. Strauss, Jack, 2013. "Does housing drive state-level job growth? Building permits and consumer expectations forecast a state’s economic activity," Journal of Urban Economics, Elsevier, vol. 73(1), pages 77-93.

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