The Changing Cyclical Variability of Economic Activity in the United States
AbstractThis paper examines the changing cyclical variability of economic activity in the United States. It first shows that the decline in variability since World War II cannot be explained by changes in the composition of economic activity or by the avoidance of financial panics. We then show that increased automatic stabilization by the government, and the increased availability of private credit after World War II combined to stabilize consumption and reduce the variability of aggregate demand. The main argument of the paper holds that greater price rigidity in recent times may have contributed to economic stability by preventing destabilizing deflations and inflations. Empirical evidence is presented to support this proposition.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1450.
Date of creation: Nov 1986
Date of revision:
Publication status: published as J. Bradford DeLong, Lawrence H. Summers. "The Changing Cyclical Variability of Economic Activity in the United States," in Robert J. Gordon, ed., "The American Business Cycle: Continuity and Change" University of Chicago Press (1986)
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Other versions of this item:
- J. Bradford DeLong & Lawrence H. Summers, 1986. "The Changing Cyclical Variability of Economic Activity in the United States," NBER Chapters, in: The American Business Cycle: Continuity and Change, pages 679-734 National Bureau of Economic Research, Inc.
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- Robert J. Gordon, 1980.
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NBER Working Papers
0455, National Bureau of Economic Research, Inc.
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- Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 974-1009, October.
- Charles L. Schultze, 1981. "Some Macro Foundations for Micro Theory," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(2), pages 521-592.
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