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An alternative definition of economic regions in the U.S. based on similarities in state business cycles

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  • Theodore M. Crone
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    Abstract

    Since the 1950s the Bureau of Economic analysis (BEA) has grouped the states into eight regions based primarily on cross-sectional similarities in their socioeconomic characteristics. This is the most frequently used grouping of states in the U.S. for economic analysis. Since several recent studies concentrate on similarities and differences in regional business cycles, this paper groups states into regions based not on a broad set of socioeconomic characteristics but on the similarities in their business cycles. The analysis makes use of a consistent set of coincident indexes estimated from a Stock and Watson-type model. The author applies k-means cluster analysis to the cyclical components of these indexes to group the 48 contiguous states into eight regions with similar cycles. Having grouped the states into regions, the author determines the relative strength of cohesion among the states in the various regions. Finally, the author compares the regions defined in this paper with the BEA regions.

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    Bibliographic Info

    Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 03-23.

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    Date of creation: 2003
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    Handle: RePEc:fip:fedpwp:03-23

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    Keywords: Business cycles ; Regional economics;

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    1. Croux, Christophe & Forni, Mario & Reichlin, Lucrezia, 1999. "A Measure of Comovement for Economic Variables: Theory and Empirics," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2339, C.E.P.R. Discussion Papers.
    2. William N. Goetzmann & Susan M. Wachter, 1998. "Clustering Methods for Real Estate Portfolios," Yale School of Management Working Papers, Yale School of Management ysm59, Yale School of Management.
    3. Gerald Carlino & Keith Sill, 2000. "Regional income fluctuations: common trends and common cycles," Working Papers, Federal Reserve Bank of Philadelphia 00-8, Federal Reserve Bank of Philadelphia.
    4. Gerald Carlino & Robert DeFina, 1993. "Regional income dynamics," Working Papers, Federal Reserve Bank of Philadelphia 93-1, Federal Reserve Bank of Philadelphia.
    5. Michael A. Kouparitsas, 2001. "Is the United States an optimum currency area? an empirical analysis of regional business cycles," Working Paper Series, Federal Reserve Bank of Chicago WP-01-22, Federal Reserve Bank of Chicago.
    6. 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, MIT Press, vol. 81(4), pages 575-593, November.
    7. Diebold & Rudebusch, . "Measuring Business Cycle: A Modern Perspective," Home Pages, University of Pennsylvania _061, University of Pennsylvania.
    8. Abraham, Jesse M. & Goetzmann, William N. & Wachter, Susan M., 1994. "Homogeneous Groupings of Metropolitan Housing Markets," Journal of Housing Economics, Elsevier, Elsevier, vol. 3(3), pages 186-206, September.
    9. Clark, Todd E, 1998. "Employment Fluctuations in U.S. Regions and Industries: The Roles of National, Region-Specific, and Industry-Specific Shocks," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 16(1), pages 202-29, January.
    10. Theodore M. Crone, 1994. "New indexes track the state of the states," Business Review, Federal Reserve Bank of Philadelphia, Federal Reserve Bank of Philadelphia, issue Jan, pages 19-31.
    11. Gerald Carlino & Robert Defina, 1998. "The Differential Regional Effects Of Monetary Policy," The Review of Economics and Statistics, MIT Press, MIT Press, vol. 80(4), pages 572-587, November.
    12. Michael T. Owyang & Howard J. Wall, 2004. "Structural breaks and regional disparities in the transmission of monetary policy," Working Papers, Federal Reserve Bank of St. Louis 2003-008, Federal Reserve Bank of St. Louis.
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