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Whatever happened to the business cycle? a Bayesian analysis of jobless recoveries

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  • Kristie M. Engemann
  • Michael T. Owyang

Abstract

During the typical recovery from U.S. post-War period economic downturns, employment recovers to its pre-recession level within months of the output trough. However, during the last two recoveries, employment has taken up to two years to achieve its pre-recession benchmark. We propose a formal empirical model of business cycles with recovery periods to demonstrate that the last two recoveries have been statistically different from previous experiences. We find that this difference can be attributed to a shift in the speed of transition between business cycle regimes. Moreover, we find this shift results from both durable and non-durable manufacturing sectors losing their cyclical characteristics. We argue that this finding of acyclicality in post-1980 manufacturing sectors is consistent with previous hypotheses (e.g., improved inventory management) regarding the reduction in macroeconomic volatility over the same period. These results suggest a link between the two phenomena, which have heretofore been studied separately.

Suggested Citation

  • Kristie M. Engemann & Michael T. Owyang, 2007. "Whatever happened to the business cycle? a Bayesian analysis of jobless recoveries," Working Papers 2007-013, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:2007-013
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    Cited by:

    1. Faberman, R. Jason, 2017. "Job flows, jobless recoveries, and the Great Moderation," Journal of Economic Dynamics and Control, Elsevier, vol. 76(C), pages 152-170.
    2. Kevin x.d. Huang & Jie Chen & Zhe Li & Jianfei Sun, 2014. "Financial Conditions and Slow Recoveries," Vanderbilt University Department of Economics Working Papers 14-00004, Vanderbilt University Department of Economics.
    3. Barnett, Alina & Mumtaz, Haroon & Theodoridis, Konstantinos, 2014. "Forecasting UK GDP growth and inflation under structural change. A comparison of models with time-varying parameters," International Journal of Forecasting, Elsevier, vol. 30(1), pages 129-143.

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    Keywords

    Business cycles; Labor market;

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