BUSINESS CYCLE FACTS Flashcards
Short run =
alteration between economic upturns and downturns,
Recession
economic downturn when output and employment falling
Duration of business cycle =
Distance (in time) from peak to trough.
UK recession =
-VE economic growth for 2 consecutive quarters
US recession =
No fixed definition
NBER determines dates of peaks and troughs using various measures.
How do economists measure business cycles?
As deviations from a secular trend, which is identified through statistical filters such as HP filter.
Yt cyclical = Yt - Yt trend
= Yt - sum j=-J to J [aj Yt-j]
Weighted average of output just before and after time t. Weights optimised trading-off smoothness and goodness of fit.
Consumption in terms of volatility and co-movement based on data
Pro-cyclical
Slightly less volatile
Investment in terms of volatility and co-movement based on data
Pro-cyclical
More volatile
Stock of physical K in terms of volatility and co-movement based on data
A-cyclical
Less volatile
Hours workerd in terms of volatility and co-movement based on data
Procyclical
As volatile
Productivity in terms of volatility and co-movement based on data
Procyclical
Less volatile
Productivity formula from solow
Solow residual = At = Yt / Kt^a Lt^1-a
Wages in terms of volatility and co-movement based on data
A-cyclical Less volatile (pretty stable over time)
Standard deviation measres
volatility
First order autocorrelation measures
extent to which variable at time t related to its value at time t-1 = persistence of shocks.
