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The Changing Cyclical Variability of Economic Activity in the United States

In: The American Business Cycle: Continuity and Change

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  • J. Bradford DeLong
  • Lawrence H. Summers

Abstract

This paper examines the changing cyclical variability of economic activity in the United States. It first shows that the decline in variability since World War II cannot be explained by changes in the composition of economic activity or by the avoidance of financial panics. We then show that increased automatic stabilization by the government, and the increased availability of private credit after World War II combined to stabilize consumption and reduce the variability of aggregate demand. The main argument of the paper holds that greater price rigidity in recent times may have contributed to economic stability by preventing destabilizing deflations and inflations. Empirical evidence is presented to support this proposition.
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Suggested Citation

  • J. Bradford DeLong & Lawrence H. Summers, 1986. "The Changing Cyclical Variability of Economic Activity in the United States," NBER Chapters, in: The American Business Cycle: Continuity and Change, pages 679-734, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:10034
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