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Are Business Cycles All Alike?

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  • Olivier J. Blanchard
  • Mark W. Watson

Abstract

This paper examines two questions. The first is whether economic fluctuations-business cycles-are due to an accumulation of nall shocks or instead mostly to infrequent large shocks. The paper concludes that neither of these two extreme views accurately characterize fluctuations. The second question is whether fluctuations are due mostly to one source of shocks, for example monetary, or instead to many sources. The paper concludes that evidence strongly supports the hypothesis of many, about equally important, sources of shocks.To analyze the empirical evidence and to reach these conclusions, the paper uses two different statistical approaches. The first is estimation ofa structural model, using a set of just identifying restrictions. The secondis non-structural and may be described as a formalization of the Burns Mitchell techniques. Both approaches are somewhat novel and should be of independent interest.

Suggested Citation

  • Olivier J. Blanchard & Mark W. Watson, 1984. "Are Business Cycles All Alike?," NBER Working Papers 1392, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1392
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    References listed on IDEAS

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    1. Fair, Ray C, 1985. "Excess Labor and the Business Cycle," American Economic Review, American Economic Association, vol. 75(1), pages 239-245, March.
    2. Robert J. Gordon, 1979. "The "End-of-Expansion" Phenomenon in Short-Run Productivity Behavior," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 10(2), pages 447-462.
    3. Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1, March.
    4. Fumio Hayashi, 1979. "The Permanent Income Hypothesis: Estimation and Testing," Discussion Papers 484, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    5. Lucas, Robert E., 1977. "Understanding business cycles," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 5(1), pages 7-29, January.
    6. Wesley Clair Mitchell, 1927. "Business Cycles: The Problem and Its Setting," NBER Books, National Bureau of Economic Research, Inc, number mitc27-1, March.
    7. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-247, April.
    8. Stanley Fischer, 1980. "Rational Expectations and Economic Policy," NBER Books, National Bureau of Economic Research, Inc, number fisc80-1, March.
    9. Brunner, Karl & Meltzer, Allan H., 1978. "The problem of inflation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 8(1), pages 1-15, January.
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