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The declining volatility of U.S. employment: was Arthur Burns right?

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  • Veronica C. Warnock
  • Francis E. Warnock

Abstract

This paper attempts to add to the understanding of changes in the magnitude of business cycle fluctuations by examining disaggregated employment data. Specifically, we use a stochastic variance approach on monthly employment data for the 1946-1996 period to highlight two stylized facts of aggregate U.S. employment - greater volatility in recessions than expansions and reduced volatility since the early 1980s. These patterns are not, however, apparent in each sector of the economy. Asymmetric volatility is only evident in manufacturing and trade; other sectors, such as construction or the narrowly defined services sector, are just as likely to exhibit high volatility in expansions. A general reduction in volatility is evident only in goods-producing sectors; some industries in the broad service-producing sector have become more volatile over time. Our results highlight the close relationship between aggregate and manufacturing volatility, and suggest that to understand why the U.S. business cycle has become more muted, researchers should strive to understand the forces at work that are reducing volatility in the manufacturing sector.

Suggested Citation

  • Veronica C. Warnock & Francis E. Warnock, 2000. "The declining volatility of U.S. employment: was Arthur Burns right?," International Finance Discussion Papers 677, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgif:677
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    References listed on IDEAS

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    9. Chang-Jin Kim & Charles R. Nelson, 1999. "Has The U.S. Economy Become More Stable? A Bayesian Approach Based On A Markov-Switching Model Of The Business Cycle," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 608-616, November.
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    Cited by:

    1. Mike Artis & Hans-Martin Krolzig & Juan Toro, 2004. "The European business cycle," Oxford Economic Papers, Oxford University Press, vol. 56(1), pages 1-44, January.
    2. Steven J. Davis & James A. Kahn, 2008. "Interpreting the Great Moderation: Changes in the Volatility of Economic Activity at the Macro and Micro Levels," Journal of Economic Perspectives, American Economic Association, vol. 22(4), pages 155-180, Fall.
    3. JONATHAN McCARTHY & EGON ZAKRAJSEK, 2007. "Inventory Dynamics and Business Cycles: What Has Changed?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 591-613, March.
    4. Colm Kearney & Frank Barry, 2005. "MNEs and Industrial Structure in Host Countries:A Mean Variance Analysis of Ireland’s Manufacturing Sector," The Institute for International Integration Studies Discussion Paper Series iiisdp023, IIIS.
    5. Robert Buckle & David Haugh & Peter Thomson, 2003. "Calm after the storm? Supply-side contributions to New Zealand's GDP volatility decline," New Zealand Economic Papers, Taylor & Francis Journals, vol. 37(2), pages 217-243.
    6. M Sensier & D van Dijk, 2001. "Short-term Volatility Versus Long-term Growth: Evidence in US Macroeconomic Time Series," The School of Economics Discussion Paper Series 0103, Economics, The University of Manchester.
    7. D van Dijk & D R Osborn & M Sensier, 2002. "Changes in variability of the business cycle in the G7 countries," The School of Economics Discussion Paper Series 0204, Economics, The University of Manchester.
    8. Irvine, F. Owen & Schuh, Scott, 2005. "Inventory investment and output volatility," International Journal of Production Economics, Elsevier, vol. 93(1), pages 75-86, January.
    9. Kim, Chang-Jin & Nelson, Charles R & Piger, Jeremy, 2004. "The Less-Volatile U.S. Economy: A Bayesian Investigation of Timing, Breadth, and Potential Explanations," Journal of Business & Economic Statistics, American Statistical Association, vol. 22(1), pages 80-93, January.
    10. Irvine, F. Owen, 2007. "Sales persistence and the reduction in GDP volatility," International Journal of Production Economics, Elsevier, vol. 108(1-2), pages 22-30, July.
    11. Eggers, Andrew & Ioannides, Yannis M., 2006. "The role of output composition in the stabilization of US output growth," Journal of Macroeconomics, Elsevier, vol. 28(3), pages 585-595, September.
    12. Marianne Sensier & Dick van Dijk, 2004. "Testing for Volatility Changes in U.S. Macroeconomic Time Series," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 833-839, August.
    13. James A. Kahn & Margaret M. McConnell & Gabriel Perez-Quiros, 2002. "On the causes of the increased stability of the U.S. economy," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 183-202.
    14. William Martin & Robert Rowthorn, 2004. "Will Stability Last?," CESifo Working Paper Series 1324, CESifo Group Munich.
    15. Irvine, F. Owen & Schuh, Scott, 2007. "Interest sensitivity and volatility reductions: Cross-section evidence," International Journal of Production Economics, Elsevier, vol. 108(1-2), pages 31-42, July.
    16. Konstantin A., KHOLODILIN & Wension Vincent, YAO, 2004. "Business Cycle Turning Points : Mixed-Frequency Data with Structural Breaks," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2004024, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    17. Hongsheng Fang & Xiangrong Jin, 2010. "Role Of Economic Structural Adjustment For Long‐Term Economic Stability In China: Estimation Based On Variance Decomposition," Pacific Economic Review, Wiley Blackwell, vol. 15(5), pages 637-652, December.

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    Keywords

    Business cycles ; Employment (Economic theory);

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