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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 de- rived 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://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2008-066.pdf
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Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2008-066.

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Length: 34 pages
Date of creation: Nov 2008
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2008-066
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  1. Uhlig, H.F.H.V.S. & Ravn, M., 1997. "On Adjusting the H-P Filter for the Frequency of Observations," Discussion Paper 1997-50, Tilburg University, Center for Economic Research.
  2. Giannone, Domenico & Lenza, Michele & Reichlin, Lucrezia, 2008. "Explaining the Great Moderation: it is not the shocks," Working Paper Series 0865, European Central Bank.
  3. John W. Kendrick, 1961. "Productivity Trends in the United States," NBER Books, National Bureau of Economic Research, Inc, number kend61-1.
  4. Otrok, C. & Whiteman, C.H., 1996. "Bayesian Leading Indicators: Measuring and Predicting Economic Conditions in Iowa," Working Papers 96-14, University of Iowa, Department of Economics.
  5. Joseph H. Davis & Christopher Hanes & Paul W. Rhode, 2009. "Harvests and Business Cycles in Nineteenth-Century America," The Quarterly Journal of Economics, Oxford University Press, vol. 124(4), pages 1675-1727.
  6. Luca Gambetti & Jordi Galí, 2007. "On the sources of the Great Moderation," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
  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.
  8. Joseph H. Davis & Christopher Hanes & Paul W. Rhode, 2009. "Harvests and Business Cycles in Nineteenth-Century America," NBER Working Papers 14686, National Bureau of Economic Research, Inc.
  9. Robert J. Gordon, 1986. "The American Business Cycle: Continuity and Change," NBER Books, National Bureau of Economic Research, Inc, number gord86-1.
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