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States and the business cycle

  • Owyang, Michael T.
  • Rapach, David E.
  • Wall, Howard J.

We model the US business cycle using a dynamic factor model that identifies common factors underlying fluctuations in state-level income and employment growth. We find three such common factors, each of which is associated with a set of factor loadings that indicate the extent to which each state's economy is related to the national business cycle. According to the factor loadings, there is a great deal of heterogeneity in the nature of the links between state and national economies. In addition to exhibiting geographic patterns, the closeness of state economies to the national business cycle is related not only to differences in industry mix but also to non-industry variables such as agglomeration and neighbor effects. Finally, we find that the common factors tend to explain large proportions of the total variability in state-level business cycles, although, again, there is a great deal of cross-state heterogeneity.

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Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 65 (2009)
Issue (Month): 2 (March)
Pages: 181-194

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Handle: RePEc:eee:juecon:v:65:y:2009:i:2:p:181-194
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622905

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