Transcript Business Cycle Measurement

Business Cycle Measurement
Definition
Properties of BC
BC Facts
• Business Cycles are the cyclical
movement of GDP over time.
• Phases of the Business Cycle
- Peak
(Boom)
- Trough
(Depression)
- Expansion (Recovery)
- Contraction (Recession)
Figure 3.2 Percentage Deviations from Trend in
Real GDP from 1947--2006
Figure 3.1 Idealized Business
Cycles
US. Business Cycles
• (Robert Lucas, 1995 Nobel Laureate,
Understanding Business Cycles)
•
“Though there is absolutely no
theoretical reason to anticipate it, one is
lead by the facts to conclude that, with
respect to the qualitative behavior of comovements among series, business
cycles are all alike…”
• (Lucas, continued)
(“…it suggests a possibility of a unified
explanation of business cycles, grounded in the
general laws governing market economies,
rather than in political or institutional
characteristics specific to particular countries or
periods.”)
• Co-Movement
An economic variable is
(1) Procyclical – moves in same direction
as GDP.
(2) Countercyclical – moves in opposite
direction as GDP
(3) Acyclical – no observed relation to
GDP
Figure 3.4 Correlations
Between Variables y and x
Figure 3.3 Time Series Plots of
x and y
• Timing
An economic variable is
(1) Leading – changes before GDP.
(2) Lagging – changes after GDP
(3) Co-Incident – changes at same time as
GDP
Figure 3.7 Leading and
Lagging Variables
Figure 3.8 Real GDP (colored line) and the
Index of Leading Economic Indicators (black
line) for 1959–2006
US Business Cycle Facts
• Persistence: GDP above trend today  above
trend tomorrow.
• Aggregate expenditures (C, I, G, NX) are
procyclical.
C is less volatile than Y, I is more volatile that Y.
• Employment (N) is procyclical
Unemployment is countercyclical
• Labor Productivity (Y/N) is procyclical
Little correlation between w and N.
Slightly leads GDP.
• Persistence of business cycles:
- There is a high correlation between
current GDP and one-period lagged
GDP:
Corr (YtYt-1) = 0.86
- If GDP is above trend by X amount
today, it will likely be above trend by
86%X tomorrow.
Figure 3.9 Real Consumption (black line)
and Real GDP (colored line)
Figure 3.10 Real Investment (black
line)and Real GDP (colored line)
Figure 3.14 Employment (black line) and
Real GDP (colored line)
Figure 3.15 Average Labor Productivity
(black line) and Real GDP (colored line)
for 1948–2003
• Money supply (Ms) growth is procyclical
and leading.
• Price Level (P) is
countercyclical/coincident or
procyclical/lagging
(pre & post-1947)
Figure 3.13 Money Supply (black line)
and Real GDP (colored line) for the
Period 1959–2003
Figure 3.11 Scatter Plot for the Percentage
Deviations from Trend in the Price Level (the
Implicit GDP Price Deflator) and Real GDP
Figure 3.12 Price Level and GDP
Table 3.1 Correlation Coefficients and
Variability
Table 3.2 Summary of
Business Cycle Facts