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The U.S. business cycle, 1867-1995: dynamic factor analysis vs. reconstructed national accounts

  • Albrecht Ritschl
  • Samad Sarferaz
  • Martin Uebele

This paper presents insights on U.S. business cycle volatility since 1867 derived from diffusion indices. We employ a Bayesian dynamic factor model to obtain aggregate and sectoral economic activity indices. We find a remarkable increase in volatility across World War I, which is reversed after World War II. While we can generate evidence of postwar moderation relative to pre-1914, this evidence is not robust to structural change, implemented by time-varying factor loadings. We do find evidence of moderation in the nominal series, however, and reproduce the standard result of moderation since the 1980s. Our estimates broadly confirm the NBER historical business cycle chronology as well the National Income and Product Accounts, except for World War II where they support alternative estimates of Kuznets (1952).

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File URL: http://eprints.lse.ac.uk/22305/
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Paper provided by London School of Economics and Political Science, Department of Economic History in its series Economic History Working Papers with number 22305.

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Length: 44 pages
Date of creation: Dec 2008
Date of revision:
Handle: RePEc:ehl:wpaper:22305
Contact details of provider: Postal: LSE, Dept. of Economic History Houghton Street London, WC2A 2AE, U.K.
Phone: +44 (0) 20 7955 7084
Web page: http://www.lse.ac.uk/economicHistory/

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  1. Nir Jaimovich & Henry E. Siu, 2009. "The Young, the Old, and the Restless: Demographics and Business Cycle Volatility," American Economic Review, American Economic Association, vol. 99(3), pages 804-26, June.
  2. Jordi Galí & Luca Gambetti, 2006. "On the sources of the Great Moderation," Economics Working Papers 1041, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2007.
  3. John W. Kendrick, 1961. "Productivity Trends in the United States," NBER Books, National Bureau of Economic Research, Inc, number kend61-1, December.
  4. Giannone, Domenico & Lenza, Michele & Reichlin, Lucrezia, 2007. "Explaining The Great Moderation: It Is Not The Shocks," CEPR Discussion Papers 6600, C.E.P.R. Discussion Papers.
  5. Robert J. Gordon, 1986. "The American Business Cycle: Continuity and Change," NBER Books, National Bureau of Economic Research, Inc, number gord86-1, December.
  6. Joseph H. Davis & Christopher Hanes & Paul W. Rhode, 2009. "Harvests and Business Cycles in Nineteenth-Century America," The Quarterly Journal of Economics, MIT Press, vol. 124(4), pages 1675-1727, November.
  7. Simon Kuznets & Lillian Epstein & Elizabeth Jenks, 1946. "National Income and Its Composition, 1919-1938, Volume II," NBER Books, National Bureau of Economic Research, Inc, number kuzn41-3, December.
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