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Stock Markets and Business Cycle Comovement in Germany before World War I: Evidence from Spectral Analysis

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  • Albrecht Ritschl
  • Martin Uebele

Abstract

This paper examines the comovement of the stock market and of real activity in Germany before World War I under the effcient market hypothesis. We employ multivariate spectral analysis to compare rivaling national product estimates to stock market behavior in the frequency domain. Close comovement of one series with the stock market enables us to decide between various rivaling business cycle chronologies. We find that business cycle dates obtained from deflated national product series are severely distorted by interference with the implicit price deflator. Among the nominal series, the income estimate of Hoffmann (1965) correlates best with the stock market, while the tax based estimate of Hoffmann and Müller (1959) is too smooth especially before 1890. We find impressive comovement between the stock market and nominal wages, a sub-series of Hoffmann's income estimate. We can show that a substantial part of this nominal wage series is driven by data on real investment activity. Our findings confirm the traditional business cycle chronology for Germany of Burns and Mitchell (1946) and Spiethoff (1955), and lead us to discard later, rivaling business cycle chronologies.

Suggested Citation

  • Albrecht Ritschl & Martin Uebele, 2005. "Stock Markets and Business Cycle Comovement in Germany before World War I: Evidence from Spectral Analysis," SFB 649 Discussion Papers SFB649DP2005-056, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    • Handle: RePEc:hum:wpaper:sfb649dp2005-056
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    4. Rania Jammazi & Chaker Aloui, 2014. "Cyclical components and dual long memory in the foreign exchange rate dynamics: the Tunisian case," Working Papers 2014-198, Department of Research, Ipag Business School.
    5. Łukasz Lenart & Mateusz Pipień, 2017. "Non-Parametric Test for the Existence of the Common Deterministic Cycle: The Case of the Selected European Countries," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 9(3), pages 201-241, September.
    6. Sarferaz, Samad & Uebele, Martin, 2009. "Tracking down the business cycle: A dynamic factor model for Germany 1820-1913," Explorations in Economic History, Elsevier, vol. 46(3), pages 368-387, July.
    7. Thomas C. Owen, 2013. "Measuring business cycles in the Russian Empire," Economic History Review, Economic History Society, vol. 66(3), pages 895-916, August.
    8. Tang, Ling & Yu, Lean & He, Kaijian, 2014. "A novel data-characteristic-driven modeling methodology for nuclear energy consumption forecasting," Applied Energy, Elsevier, vol. 128(C), pages 1-14.
    9. Wang, Delu & Tian, Cuicui & Mao, Jinqi & Chen, Fan, 2023. "Forecasting coal demand in key coal consuming industries based on the data-characteristic-driven decomposition ensemble model," Energy, Elsevier, vol. 282(C).
    10. Ignacio Escanuela Romana & Clara Escanuela Nieves, 2023. "A spectral approach to stock market performance," Papers 2305.05762, arXiv.org.
    11. Lukasz Lenart, 2015. "Discrete Spectral Analysis. The Case of Industrial Production in Selected European Countries," Dynamic Econometric Models, Uniwersytet Mikolaja Kopernika, vol. 15, pages 27-47.
    12. Reijnders, Jan P.G., 2009. "Trend movements and inverted Kondratieff waves in the Dutch economy, 1800-1913," Structural Change and Economic Dynamics, Elsevier, vol. 20(2), pages 90-113, June.

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    More about this item

    Keywords

    Business Cycle Chronology; Imperial Germany; Spectral Analysis; Effcient Market Hypothesis;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • N13 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: Pre-1913

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