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The Changing Nature of Sectoral Comovement

Author

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  • Christian vom Lehn

    (Brigham Young University)

  • Thomas Winberry

    (University of Chicago)

Abstract

The correlation of output and employment across sectors in the economy -- comovement -- is the defining feature of the business cycle. In this paper, we study how industry comovement patterns in US business cycles have changed over time. We first show that the correlation of output across sectors has fallen since the 1980s, but the correlation of employment across sectors has not. We then build a model featuring input-output linkages in production in both final goods and investment goods which is consistent with these facts. Finally, we use the model to explore the link between changes in comovement patterns across sectors and changes in aggregate dynamics. We find a significant role for comovement in both the decline of GDP volatility and the rise in the volatility of employment relative to output since the 1980s.

Suggested Citation

  • Christian vom Lehn & Thomas Winberry, 2018. "The Changing Nature of Sectoral Comovement," 2018 Meeting Papers 277, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:277
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    References listed on IDEAS

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