Working Paper: NBER ID: w16075
Authors: Mario J. Crucini; Mototsugu Shintani
Abstract: We propose a simple saving-based measure of the cyclical component in GDP. The measure is motivated by the prediction that the represenative consumer changes savings in response to temporary deviations of income from its stochastic trend, while satisfying a present-value budget constraint. To evaluate our procedure, we employ the bivariate error correction model of Cochrane (1994) to the member countries of the G-7 and Australia. Our estimates reveal, that to a close approximation, the stochastic trend component of GDP is consumption and the transitory component is the error correction term, which justifies the use of our saving-based measure.
Keywords: Business Cycles; Saving; Consumption; Income
JEL Codes: E3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| income (E25) | savings (D14) |
| consumption (E21) | future income (J17) |
| savings (D14) | cyclical component of GDP (E20) |
| savings (D14) | transitory variation in output (E39) |
| income (E25) | consumption (E21) |