Measuring Business Cycles by Saving for a Rainy Day
AbstractWe propose a simple saving-based measure of the cyclical component in GDP. The measure is motivated by the prediction that the represenative consumer changes savings in response to temporary deviations of income from its stochastic trend, while satisfying a present-value budget constraint. To evaluate our procedure, we employ the bivariate error correction model of Cochrane (1994) to the member countries of the G-7 and Australia. Our estimates reveal, that to a close approximation, the stochastic trend component of GDP is consumption and the transitory component is the error correction term, which justifies the use of our saving-based measure.
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Date of creation: Jun 2010
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- Mario J. Crucini & Mototsugu Shintani, 2010. "Measuring business cycles by saving for a rainy day," Globalization and Monetary Policy Institute Working Paper 50, Federal Reserve Bank of Dallas.
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Measuring business cycles by saving for a rainy day
by Christian Zimmermann in NEP-DGE blog on 2010-07-28 14:07:39
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