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A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle

  • Hamilton, James D

This paper models occasional, discrete shifts in the growth rate of a nonstationary series. Algorithms for inferring these unobserved shifts are presented, a byproduct of which permits estimation of parameters by maximum likelihood. An empirical application of this technique suggests that the periodic shift from a positive growth rate to a negative growth rate is a recurrent feature of the U.S. business cycle, and indeed could be used as an objective criterion for defining and measuring economic recessions. The estimated parameter values suggest that a typical economic recession is associated with a 3 percent permanent drop in the level of GNP. Copyright 1989 by The Econometric Society.

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Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 57 (1989)
Issue (Month): 2 (March)
Pages: 357-84

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Handle: RePEc:ecm:emetrp:v:57:y:1989:i:2:p:357-84
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