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Whatever Happened To The Business Cycle? A Bayesian Analysis Of Jobless Recoveries

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  • Engemann, Kristie M.
  • Owyang, Michael T.

Abstract

During the typical recovery from U.S. postwar period economic downturns, employment recovers to its prerecession level within months of the output trough. However, during the past two recoveries, employment has taken up to three years to achieve its prerecession benchmark. We propose a formal empirical model of business cycles with recovery periods to demonstrate that the past two recoveries have been statistically different from previous experiences. We find that this difference can be attributed to a shift in the speed of transition between business cycle regimes. Moreover, we find this shift results from both durable and nondurable manufacturing sectors losing their cyclical characteristics. We argue that this finding of acyclicality in post-1980 manufacturing sectors is consistent with previous hypotheses (e.g., improved inventory management) regarding the reduction in macroeconomic volatility over the same period. These results suggest a link between the two phenomena, which have heretofore been studied separately.

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  • Engemann, Kristie M. & Owyang, Michael T., 2010. "Whatever Happened To The Business Cycle? A Bayesian Analysis Of Jobless Recoveries," Macroeconomic Dynamics, Cambridge University Press, vol. 14(5), pages 709-726, November.
    • Handle: RePEc:cup:macdyn:v:14:y:2010:i:05:p:709-726_99
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    Cited by:

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    2. Kevin x.d. Huang & Jie Chen & Zhe Li & Jianfei Sun, 2014. "Financial Conditions and Slow Recoveries," Vanderbilt University Department of Economics Working Papers 14-00004, Vanderbilt University Department of Economics.
    3. Michael Dueker & Laura E Jackson & Michael T Owyang & Martin Sola, 2023. "A time-varying threshold STAR model with applications," Oxford Open Economics, Oxford University Press, vol. 2, pages 63-98.
    4. Fabio Méndez & Jared D. Reber & Jeremy Schwartz, 2016. "A New Approach to the Study of Jobless Recoveries," Southern Economic Journal, John Wiley & Sons, vol. 83(2), pages 573-589, October.
    5. Panovska, Irina & Ramamurthy, Srikanth, 2022. "Decomposing the output gap with inflation learning," Journal of Economic Dynamics and Control, Elsevier, vol. 136(C).
    6. Bradley Michael D. & Jansen Dennis W., 2018. "Nonlinear evidence on the existence of jobless recoveries," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 22(1), pages 1-19, February.
    7. Barnett, Alina & Mumtaz, Haroon & Theodoridis, Konstantinos, 2014. "Forecasting UK GDP growth and inflation under structural change. A comparison of models with time-varying parameters," International Journal of Forecasting, Elsevier, vol. 30(1), pages 129-143.
    8. Donayre, Luiggi, 2022. "On the behavior of Okun's law across business cycles," Economic Modelling, Elsevier, vol. 112(C).
    9. Guisinger Amy Y. & Jackson Laura E. & Owyang Michael T., 2024. "Age and gender differentials in unemployment and hysteresis," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 28(4), pages 567-581.
    10. Panovska, Irina & Zhang, Licheng, 2024. "Jobless recoveries and time variation in labor markets," Journal of Macroeconomics, Elsevier, vol. 81(C).
    11. Compagnucci, Fabiano & Gentili, Andrea & Valentini, Enzo & Gallegati, Mauro, 2021. "Have jobs and wages stopped rising? Productivity and structural change in advanced countries," Structural Change and Economic Dynamics, Elsevier, vol. 56(C), pages 412-430.

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