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The Dynamic Relationship Between Permanent and Transitory Components of U.S. Business Cycle

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  • Chang-Jin Kim

    (Korea University)

  • Jeremy Piger

    (Board of Governors)

  • Richard Startz

Abstract

This paper investigates the relationship between permanent and transitory components of U.S. recessions in an empirical model allowing for business cycle asymmetry. Using a common stochastic trend representation for real GDP and consumption, we divide real GDP into permanent and transitory components, the dynamics of which are different in booms vs. recessions. We find evidence of substantial asymmetries in postwar recessions, and that both the permanent and transitory component have contributed to these recessions. We also allow for the timing of switches from boom to recession for the permanent component to be correlated with switches from boom to recession in the transitory component. The parameter estimates suggest a specific pattern of recessions: switches in the permanent component lead switches in the transitory component both when entering and leaving recessions.

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Bibliographic Info

Paper provided by University of Washington, Department of Economics in its series Working Papers with number UWEC-2003-36.

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Date of creation: Nov 2003
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Handle: RePEc:udb:wpaper:uwec-2003-36

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Cited by:
  1. Richard G. Anderson & Barry Jones & Marcelle Chauvet, 2013. "Nonlinear relationship between permanent and transitory components of monetary aggregates and the economy," Working Papers 2013-018, Federal Reserve Bank of St. Louis.
  2. Senyuz, Zeynep, 2009. "Factor Analysis of Permanent and Transitory Dynamics of the U.S. Economy and the Stock Market," MPRA Paper 26855, University Library of Munich, Germany, revised Mar 2010.
  3. Chin Nam Low & Heather Anderson & Ralph D. Snyder, 2006. "Beveridge-Nelson Decomposition with Markov Switching," Monash Econometrics and Business Statistics Working Papers 17/06, Monash University, Department of Econometrics and Business Statistics.
  4. Cliff L. F. Attfield & Jonathan R. W. Temple, 2006. "Balanced growth and the great ratios: new evidence for the US and UK," Centre for Growth and Business Cycle Research Discussion Paper Series 75, Economics, The Univeristy of Manchester.

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