Why Do Countries and Industries with Large Seasonal Cycles Also Have Large Business Cycles?
We show there is a strong, positive correlation across countries and industries between the standard deviation of the seasonal component and the standard deviation of the non-seasonal component of aggregate variables such as output, labor input, interest rates, and prices. After documenting this stylized fact, we discuss possible explanations and develop a model that generates our empirical finding. The main feature of the model is that firms endogenously choose their degree of technological flexibility as a function of the amounts of seasonal and non-seasonal variation in demand. Although this model is intended to be illustrative, we find evidence supporting one of its key empirical implications.
|Date of creation:||Feb 1991|
|Date of revision:|
|Publication status:||published as Quarterly Journal of Economics, May 1992|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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