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States and the business cycle

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  • Michael T. Owyang
  • David E. Rapach
  • Howard J. Wall

Abstract

We model the U.S. business cycle using a dynamic factor model that identifies common factors underlying fluctuations in state-level income and employment growth. We find three such common factors, each of which is associated with a set of factor loadings that indicate the extent to which each state’s business cycle is related to the national business cycle. According to the factor loadings, there is a great deal of heterogeneity in the nature of the links between state and national economies. In addition to exhibiting interesting geographic patterns, the factor loadings tend to be related to differences in industry mix. Finally, we find that the common factors tend to explain large proportions of the total variability in state-level business cycles, although there is a great deal of cross-state heterogeneity.

Suggested Citation

  • Michael T. Owyang & David E. Rapach & Howard J. Wall, 2008. "States and the business cycle," Working Papers 2007-050, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:2007-050
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    Cited by:

    1. Arias, Maria A. & Gascon, Charles S. & Rapach, David E., 2016. "Metro business cycles," Journal of Urban Economics, Elsevier, vol. 94(C), pages 90-108.
    2. Guisinger, Amy Y. & Hernandez-Murillo, Ruben & Owyang, Michael T. & Sinclair, Tara M., 2018. "A state-level analysis of Okun's law," Regional Science and Urban Economics, Elsevier, vol. 68(C), pages 239-248.
    3. Scott W Hegerty, 2015. "Employment Cycle Co-Movements and Economic Integration Between Milwaukee and Chicago," Economics Bulletin, AccessEcon, vol. 35(4), pages 2776-2785.
    4. Magnusson, Kristin, 2009. "The Impact of U.S. Regional Business Cycles on Remittances to Latin America," SSE/EFI Working Paper Series in Economics and Finance 710, Stockholm School of Economics.
    5. Owyang, Michael T. & Piger, Jeremy & Wall, Howard J., 2013. "Discordant city employment cycles," Regional Science and Urban Economics, Elsevier, vol. 43(2), pages 367-384.
    6. Millar, Jonathan N. & Oliner, Stephen D. & Sichel, Daniel E., 2016. "Time-to-plan lags for commercial construction projects," Regional Science and Urban Economics, Elsevier, vol. 59(C), pages 75-89.
    7. Di Caro, Paolo, 2014. "Regional recessions and recoveries in theory and practice: a resilience-based overview," MPRA Paper 60300, University Library of Munich, Germany.
    8. Bryan Perry & Kerk L Phillips & David E. Spencer, 2015. "State-Level Variation in the Real Wage Response to Monetary Policy," Annals of Economics and Finance, Society for AEF, vol. 16(1), pages 1-17, May.
    9. Henning, Martin & Enflo, Kerstin & Andersson, Fredrik N.G., 2011. "Trends and cycles in regional economic growth," Explorations in Economic History, Elsevier, vol. 48(4), pages 538-555.
    10. Strauss, Jack, 2013. "Does housing drive state-level job growth? Building permits and consumer expectations forecast a state’s economic activity," Journal of Urban Economics, Elsevier, vol. 73(1), pages 77-93.
    11. Florian Neumeier, 2015. "Do Businessmen Make Good Governors?," MAGKS Papers on Economics 201519, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    12. David Matesanz Gomez & Benno Torgler & Guillermo J. Ortega, 2013. "Measuring Global Economic Interdependence: A Hierarchical Network Approach," The World Economy, Wiley Blackwell, vol. 36(12), pages 1632-1648, December.
    13. Michael Artis & Marianne Sensier, 2010. "Tracking Unemployment in the North West Through Recession and Forecasting Recovery," Centre for Growth and Business Cycle Research Discussion Paper Series 136, Economics, The Univeristy of Manchester.
    14. Rapach, David E. & Strauss, Jack K., 2012. "Forecasting US state-level employment growth: An amalgamation approach," International Journal of Forecasting, Elsevier, vol. 28(2), pages 315-327.
    15. Chad R. Wilkerson, 2009. "Recession and recovery across the nation: lessons from history," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 5-24.
    16. Wall, Howard J., 2013. "The employment cycles of neighboring cities," Regional Science and Urban Economics, Elsevier, vol. 43(1), pages 177-185.
    17. Casto Montero Kuscevic, 2014. "Okun’s law and urban spillovers in US unemployment," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 53(3), pages 719-730, November.
    18. David Shepherd & Robert Dixon, 2010. "The not-so-great moderation? Evidence on changing volatility from Australian regions," Department of Economics - Working Papers Series 1090, The University of Melbourne.

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