Are Business Cycles All Alike?
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.
|Date of creation:||Dec 1987|
|Date of revision:|
|Publication status:||published as Blanchard, Olivier J. and Mark Watson. "Are All Business Cycles Alike?" The American Business Cycle: Continuity and Change, edited by Robert J. Gordon. Chicago: University of Chicago Press, 1986, pp. 123-156.|
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- 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.
- Blanchard, Olivier J, 1985.
"Debt, Deficits, and Finite Horizons,"
Journal of Political Economy,
University of Chicago Press, vol. 93(2), pages 223-47, April.
- Fumio Hayashi, 1979. "The Permanent Income Hypothesis: Estimation and Testing," Discussion Papers 484, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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