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Recent changes in the U.S. business cycle

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  • Marcelle Chauvet
  • Simon Potter

Abstract

The U.S. business cycle expansion that started in March 1991 is the longest on record. This paper uses statistical techniques to examine whether this expansion is a onetime unique event or whether its length is a result of a change in the stability of the U.S. economy. Bayesian methods are used to estimate a common factor model that allows for structural breaks in the dynamics of a wide range of macroeconomic variables. We find strong evidence that a reduction in volatility is common to the series examined. Further, the reduction in volatility implies that future expansions will be considerably longer than the historical average.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 126.

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Date of creation: 2001
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Handle: RePEc:fip:fednsr:126

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Related research

Keywords: Business cycles ; Monetary policy - United States;

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References

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  1. Francis X. Diebold & Glenn D. Rudebusch, 1990. "Have postwar economic fluctuations been stabilized?," Discussion Paper / Institute for Empirical Macroeconomics 33, Federal Reserve Bank of Minneapolis.
  2. Sensier, M. & Dijk, D.J.C. van, 2001. "Short-term volatility versus long-term growth: evidence in US macroeconomic time series," Econometric Institute Report EI 2001-11, Erasmus University Rotterdam, Econometric Institute.
  3. Romer, Christina D., 1994. "Remeasuring Business Cycles," The Journal of Economic History, Cambridge University Press, vol. 54(03), pages 573-609, September.
  4. Chauvet, Marcelle, 1998. "An Econometric Characterization of Business Cycle Dynamics with Factor Structure and Regime Switching," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 969-96, November.
  5. Olivier Blanchard & John Simon, 2001. "The Long and Large Decline in U.S. Output Volatility," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(1), pages 135-174.
  6. Koop, Gary & Potter, Simon M., 1998. "Bayes factors and nonlinearity: Evidence from economic time series1," Journal of Econometrics, Elsevier, vol. 88(2), pages 251-281, November.
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