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The Life Cycle of US Economic Expansions

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Author Info
Edward E. Leamer

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Abstract

Graphs that allow side by side comparisons of the six longer US expansions since 1950 suggest that these expansions have four distinct phases: (1) a high growth recovery during which the rate of unemployment declines to its pre-recession level, (2) a modest growth plateau during which the rate of unemployment is constant, (3) a growth spurt that drives unemployment down further and (4) a second plateau with modest growth and constant rate of unemployment. There have been only three expansions that have experienced the spurt and none has experienced a second spurt. These phases involve substantially different rates of GDP growth, but within each of these four phases GDP growth is largely unpredictable. Forecast accuracy thus comes mostly from understanding the transitions. This requires both data and economics. The economics takes the form of a predator/prey model of the cycle, where the prey are investment opportunities and the predators are entrepreneurs. A probit model of the transition into recession raises concerns about how much longer the aged Bush/Clinton expansion can last.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8192.

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Date of creation: Mar 2001
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Handle: RePEc:nbr:nberwo:8192

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E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

References listed on IDEAS
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  1. James D. Hamilton & Dong Heon Kim, 2000. "A Re-examination of the Predictability of Economic Activity Using the Yield Spread," NBER Working Papers 7954, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Estrella, Arturo & Hardouvelis, Gikas A, 1991. " The Term Structure as a Predictor of Real Economic Activity," Journal of Finance, American Finance Association, vol. 46(2), pages 555-76, June. [Downloadable!] (restricted)
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  3. Estrella, Arturo & Mishkin, Frederic S., 1997. "The predictive power of the term structure of interest rates in Europe and the United States: Implications for the European Central Bank," European Economic Review, Elsevier, vol. 41(7), pages 1375-1401, July. [Downloadable!] (restricted)
  4. Robert J. Gordon, 2000. "Does the "New Economy" Measure up to the Great Inventions of the Past?," NBER Working Papers 7833, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March. [Downloadable!] (restricted)
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  1. Simon M. Potter & Edward E. Leamer, 2004. "A Nonlinear Model of the Business Cycle," Econometric Society 2004 North American Winter Meetings 490, Econometric Society. [Downloadable!]
  2. Javier Gómez Biscarri, 2002. "Dating Recessions from Industrial Production Indexes: An Analysis for Europe and the US," Faculty Working Papers 05/02, School of Economics and Business Administration, University of Navarra. [Downloadable!]
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