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The Dynamic Relationship between Permanent and Transitory Components of U.S. Business Cycles

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  • CHANG-JIN KIM
  • JEREMY M. PIGER
  • RICHARD STARTZ

Abstract

This paper investigates the dynamic relationship between permanent and transitory components of post-war U.S. business cycles. We specify a time-series model for real GNP and consumption in which the two share a common stochastic trend and transitory component, and Markov-regime switching is used to model business cycle phases in these components. The timing of switches between business cycle phases is allowed to differ across the permanent and transitory components. We find strong evidence of a lead-lag relationship between the switches in the two components. Specifically, switches in the permanent component leads switches in the transitory component when entering recessions. Copyright 2007 The Ohio State University.

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  • Chang-Jin Kim & Jeremy M. Piger & Richard Startz, 2007. "The Dynamic Relationship between Permanent and Transitory Components of U.S. Business Cycles," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(1), pages 187-204, February.
    • Handle: RePEc:mcb:jmoncb:v:39:y:2007:i:1:p:187-204
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    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. Zeynep Senyuz, 2011. "Factor analysis of permanent and transitory dynamics of the US economy and the stock market," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(6), pages 975-998, September.
    5. Yunjong Eo & James Morley, 2022. "Why Has the U.S. Economy Stagnated since the Great Recession?," The Review of Economics and Statistics, MIT Press, vol. 104(2), pages 246-258, May.
    6. Richard G. Anderson & Marcelle Chauvet & Barry Jones, 2015. "Nonlinear Relationship Between Permanent and Transitory Components of Monetary Aggregates and the Economy," Econometric Reviews, Taylor & Francis Journals, vol. 34(1-2), pages 228-254, February.
    7. Danilo Leiva-Leon, 2017. "Measuring Business Cycles Intra-Synchronization in US: A Regime-switching Interdependence Framework," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(4), pages 513-545, August.
    8. Okimoto, Tatsuyoshi & Takaoka, Sumiko, 2022. "The credit spread curve distribution and economic fluctuations in Japan," Journal of International Money and Finance, Elsevier, vol. 122(C).
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