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The Shifts in Lead-Lag Properties of the US Business Cycle

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Abstract

We document shifts in the lead-lag properties of the US business cycle since the mid- 1980s. Specifically, (i) the well-known inverted-leading-indicator-property of real interest rates has completely vanished; (ii) labour productivity switched from positively leading to negatively lagging output and labour inputs over the cycle; and (iii) the unemployment rate shifted from lagging productivity negatively to leading positively. Many contemporary business cycle models produce counterfactual cross-correlations revealing that popular frictions and shocks provide an incomplete account of business cycle comovement. Determining the underlying sources of these shifts in the lead-lag properties is therefore a promising direction for future research.

Suggested Citation

  • Joshua Brault & Hashmat Khan, 2018. "The Shifts in Lead-Lag Properties of the US Business Cycle," Carleton Economic Papers 18-03, Carleton University, Department of Economics, revised 01 Mar 2019.
  • Handle: RePEc:car:carecp:18-03
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    Keywords

    Business Cycles; Cross-Correlations; DSGE Models; Interest Rates; Productivity; Hours; Employment; Unemployment;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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