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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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    Related research

    Keywords: Business cycles ; Regional economics;

    This paper has been announced in the following NEP Reports:

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    1. Michael T. Owyang & Howard J. Wall, 2004. "Structural breaks and regional disparities in the transmission of monetary policy," Working Papers 2003-008, Federal Reserve Bank of St. Louis.
    2. Carlino Gerald & Defina Robert, 1995. "Regional Income Dynamics," Journal of Urban Economics, Elsevier, vol. 37(1), pages 88-106, January.
    3. Michael A. Kouparitsas, 2001. "Is the United States an optimum currency area? an empirical analysis of regional business cycles," Working Paper Series WP-01-22, Federal Reserve Bank of Chicago.
    4. 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, vol. 81(4), pages 575-593, November.
    5. Diebold, Francis X & Rudebusch, Glenn D, 1996. "Measuring Business Cycles: A Modern Perspective," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 67-77, February.
    6. Gerald Carlino & Keith Sill, 2000. "Regional income fluctuations: common trends and common cycles," Working Papers 00-8, Federal Reserve Bank of Philadelphia.
    7. Croux, Christophe & Forni, Mario & Reichlin, Lucrezia, 1999. "A Measure of Comovement for Economic Variables: Theory and Empirics," CEPR Discussion Papers 2339, C.E.P.R. Discussion Papers.
    8. Abraham, Jesse M. & Goetzmann, William N. & Wachter, Susan M., 1994. "Homogeneous Groupings of Metropolitan Housing Markets," Journal of Housing Economics, 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, vol. 16(1), pages 202-29, January.
    10. Gerald Carlino & Robert Defina, 1998. "The Differential Regional Effects Of Monetary Policy," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 572-587, November.
    11. Theodore M. Crone, 1994. "New indexes track the state of the states," Business Review, Federal Reserve Bank of Philadelphia, issue Jan, pages 19-31.
    12. William N. Goetzmann & Susan M. Wachter, 1995. "Clustering Methods for Real Estate Portfolios," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 23(3), pages 271-310.
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