IDEAS home Printed from https://ideas.repec.org/p/zbw/sfb649/sfb649dp2008-066.html
   My bibliography  Save this paper

The U.S. business cycle, 1867-1995: Dynamic factor analysis vs. reconstructed national accounts

Author

Listed:
  • Ritschl, Albrecht
  • Sarferaz, Samad
  • Uebele, Martin

Abstract

This paper presents insights on U.S. business cycle volatility since 1867 de- rived from diffusion indices. We employ a Bayesian dynamic factor model to obtain aggregate and sectoral economic activity indices. We find a remarkable increase in volatility across World War I, which is reversed after World War II. While we can generate evidence of postwar moderation relative to pre-1914, this evidence is not robust to structural change, implemented by time-varying factor loadings. We do find evidence of moderation in the nominal series, however, and reproduce the standard result of moderation since the 1980s. Our estimates broadly confirm the NBER historical business cycle chronology as well the National Income and Product Accounts, except for World War II where they support alternative estimates of Kuznets (1952).

Suggested Citation

  • Ritschl, Albrecht & Sarferaz, Samad & Uebele, Martin, 2008. "The U.S. business cycle, 1867-1995: Dynamic factor analysis vs. reconstructed national accounts," SFB 649 Discussion Papers 2008-066, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    • Handle: RePEc:zbw:sfb649:sfb649dp2008-066
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/25309/1/590225162.PDF
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Nir Jaimovich & Henry E. Siu, 2009. "The Young, the Old, and the Restless: Demographics and Business Cycle Volatility," American Economic Review, American Economic Association, vol. 99(3), pages 804-826, June.
    2. 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.
    3. Marianne Baxter & Robert G. King, 1999. "Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 575-593, November.
    4. Joseph H. Davis & Christopher Hanes & Paul W. Rhode, 2009. "Harvests and Business Cycles in Nineteenth-Century America," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1675-1727.
    5. Robert J. Gordon, 1986. "The American Business Cycle: Continuity and Change," NBER Books, National Bureau of Economic Research, Inc, number gord86-1.
    6. William D. Nordhaus & James Tobin, 1973. "Is Growth Obsolete?," NBER Chapters, in: The Measurement of Economic and Social Performance, pages 509-564, National Bureau of Economic Research, Inc.
    7. Nathan Balke & Robert J. Gordon, 1986. "Appendix B: Historical Data," NBER Chapters, in: The American Business Cycle: Continuity and Change, pages 781-850, National Bureau of Economic Research, Inc.
    8. Domenico Giannone & Michele Lenza & Lucrezia Reichlin, 2008. "Explaining The Great Moderation: It Is Not The Shocks," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 621-633, 04-05.
    9. Uhlig, H.F.H.V.S. & Ravn, M., 1997. "On Adjusting the H-P Filter for the Frequency of Observations," Discussion Paper 1997-50, Tilburg University, Center for Economic Research.
    10. Luca Gambetti & Jordi Galí, 2009. "On the Sources of the Great Moderation," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 26-57, January.
    11. John W. Kendrick, 1961. "Productivity Trends in the United States," NBER Books, National Bureau of Economic Research, Inc, number kend61-1.
    12. Carter,Susan B. & Gartner,Scott Sigmund & Haines,Michael R. & Olmstead,Alan L. & Sutch,Richard & Wri (ed.), 2006. "The Historical Statistics of the United States 5 Volume Hardback Set," Cambridge Books, Cambridge University Press, number 9780521817912, September.
    13. Otrok, Christopher & Whiteman, Charles H, 1998. "Bayesian Leading Indicators: Measuring and Predicting Economic Conditions in Iowa," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 997-1014, November.
    14. Margaret M. McConnell & Gabriel Perez-Quiros, 2000. "Output fluctuations in the United States: what has changed since the early 1980s?," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
    15. Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1.
    16. Timothy Cogley & Thomas J. Sargent, 2005. "Drift and Volatilities: Monetary Policies and Outcomes in the Post WWII U.S," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 262-302, April.
    17. Lawrence J. Christiano & Terry J. Fitzgerald, 2003. "The Band Pass Filter," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 435-465, May.
    18. Sylvia Frühwirth‐Schnatter, 1994. "Data Augmentation And Dynamic Linear Models," Journal of Time Series Analysis, Wiley Blackwell, vol. 15(2), pages 183-202, March.
    19. Robert J. Gordon & John Veitch, 1986. "Fixed Investment in the American Business Cycle, 1919-83," NBER Chapters, in: The American Business Cycle: Continuity and Change, pages 267-358, National Bureau of Economic Research, Inc.
    20. Simon Kuznets & Lillian Epstein & Elizabeth Jenks, 1946. "National Income and Its Composition, 1919-1938, Volume II," NBER Books, National Bureau of Economic Research, Inc, number kuzn41-3.
    21. Giorgio E. Primiceri, 2005. "Time Varying Structural Vector Autoregressions and Monetary Policy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(3), pages 821-852.
    22. Chang-Jin Kim & Charles R. Nelson, 1999. "Has The U.S. Economy Become More Stable? A Bayesian Approach Based On A Markov-Switching Model Of The Business Cycle," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 608-616, November.
    23. Robert J. Gordon, 1986. "Front matter, The American Business Cycle. Continuity and Change," NBER Chapters, in: The American Business Cycle: Continuity and Change, pages -15, National Bureau of Economic Research, Inc.
    24. Simon Kuznets, 1941. "National Income, 1919-1938," NBER Books, National Bureau of Economic Research, Inc, number kuzn41-2.
    25. repec:bla:revinw:v:21:y:1975:i:2:p:153-81 is not listed on IDEAS
    26. Carol S. Carson, 1975. "The History Of The United States National Income And Product Accounts: The Development Of An Analytical Tool," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 21(2), pages 153-181, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Selgin, George & Lastrapes, William D. & White, Lawrence H., 2012. "Has the Fed been a failure?," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 569-596.
    2. Stefan Oliver Houpt & Juan Carlos Rojo Cagigal, 2014. "Relative deprivation and labour conflict during Spain’s industrialization: the Bilbao estuary, 1914–1936," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 8(3), pages 335-369, September.
    3. Thomas L. Hogan, Daniel J. Smith, Robin Aguiar-Hicks, 2018. "Central Banking without Romance," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 15(2), pages 293-314, December.
    4. Matthias Morys & Martin Ivanov, 2015. "The emergence of a European region: business cycles in South-East Europe from political independence to World War II," European Review of Economic History, European Historical Economics Society, vol. 19(4), pages 382-411.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ritschl, Albrecht & Uebele, Martin & Sarferaz, Samad, 2008. "The U.S. Business Cycle, 1867-1995: A Dynamic Factor Approach," CEPR Discussion Papers 7069, C.E.P.R. Discussion Papers.
    2. Ritschl, Albrecht & Sarferaz, Samad & Uebele, Martin, 2016. "The U.S. business cycle, 1867–2006: a dynamic factor approach," LSE Research Online Documents on Economics 67420, London School of Economics and Political Science, LSE Library.
    3. Selgin, George & Lastrapes, William D. & White, Lawrence H., 2012. "Has the Fed been a failure?," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 569-596.
    4. Reicher, Christopher Phillip, 2009. "Expectations, monetary policy, and labor markets: lessons from the Great Depression," Kiel Working Papers 1543, Kiel Institute for the World Economy (IfW Kiel).
    5. Kliem, Martin & Kriwoluzky, Alexander & Sarferaz, Samad, 2016. "Monetary–fiscal policy interaction and fiscal inflation: A tale of three countries," European Economic Review, Elsevier, vol. 88(C), pages 158-184.
    6. Grydaki, Maria & Bezemer, Dirk, 2013. "The role of credit in the Great Moderation: A multivariate GARCH approach," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4615-4626.
    7. Martin Kliem & Alexander Kriwoluzky & Samad Sarferaz, 2016. "On the Low‐Frequency Relationship Between Public Deficits and Inflation," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 31(3), pages 566-583, April.
    8. Ledenyov, Dimitri O. & Ledenyov, Viktor O., 2015. "Wave function method to forecast foreign currencies exchange rates at ultra high frequency electronic trading in foreign currencies exchange markets," MPRA Paper 67470, University Library of Munich, Germany.
    9. Magnus Reif, 2020. "Macroeconomics, Nonlinearities, and the Business Cycle," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 87.
    10. Steven J. Davis & James A. Kahn, 2008. "Interpreting the Great Moderation: Changes in the Volatility of Economic Activity at the Macro and Micro Levels," Journal of Economic Perspectives, American Economic Association, vol. 22(4), pages 155-180, Fall.
    11. Martyna Marczak & Víctor Gómez, 2017. "Monthly US business cycle indicators: a new multivariate approach based on a band-pass filter," Empirical Economics, Springer, vol. 52(4), pages 1379-1408, June.
    12. Dimitris Korobilis, 2013. "Assessing the Transmission of Monetary Policy Using Time-varying Parameter Dynamic Factor Models-super-," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 75(2), pages 157-179, April.
    13. Pancrazi, Roberto & Vukotic, Marija, 2012. "Technology Persistence and Monetary Policy," Economic Research Papers 270536, University of Warwick - Department of Economics.
    14. Luca Gambetti & Jordi Galí, 2009. "On the Sources of the Great Moderation," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 26-57, January.
    15. Cantore, C. & Ferroni, F. & León-Ledesma, M A., 2011. "Interpreting the Hours-Technology time-varying relationship," Working papers 351, Banque de France.
    16. Nason, James M. & Tallman, Ellis W., 2015. "Business Cycles And Financial Crises: The Roles Of Credit Supply And Demand Shocks," Macroeconomic Dynamics, Cambridge University Press, vol. 19(4), pages 836-882, June.
    17. Serena Ng & Jonathan H. Wright, 2013. "Facts and Challenges from the Great Recession for Forecasting and Macroeconomic Modeling," Journal of Economic Literature, American Economic Association, vol. 51(4), pages 1120-1154, December.
    18. Mr. Ashoka Mody & Ms. Alina Carare, 2010. "Spillovers of Domestic Shocks: Will They Counteract the “Great Moderation”?," IMF Working Papers 2010/078, International Monetary Fund.
    19. Drew Creal & Siem Jan Koopman & Eric Zivot, 2010. "Extracting a robust US business cycle using a time-varying multivariate model-based bandpass filter," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(4), pages 695-719.
    20. Mumtaz, Haroon & Zanetti, Francesco, 2012. "Neutral technology shocks and employment dynamics: results based on an RBC identification scheme," Bank of England working papers 453, Bank of England.

    More about this item

    Keywords

    U.S. business cycle; volatility; dynamic factor analysis;
    All these keywords.

    JEL classification:

    • N11 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: Pre-1913
    • N12 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: 1913-
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:sfb649:sfb649dp2008-066. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/sohubde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.