Working Paper: NBER ID: w22825
Authors: Paul Beaudry; Dana Galizia; Franck Portier
Abstract: This paper begins by re-examining the spectral properties of several cyclically sensitive variables such as hours worked, unemployment and capacity utilization. For each of these series, we document the presence of an important peak in the spectral density at a periodicity of approximately 36-40 quarters. We take this pattern as suggestive of intriguing but little-studied cyclical phenomena at the long end of the business cycle, and we ask how best to explain it. In particular, we explore whether such patterns may reflect slow-moving limit cycle forces, wherein booms sow the seeds of the subsequent busts. To this end, we present a general class of models, featuring local complementarities, that can give rise to unique-equilibrium behavior characterized by stochastic limit cycles. We then use the framework to extend a New Keynesian-type model in a manner aimed at capturing the notion of an accumulation-liquidation cycle. We estimate the model by indirect inference and find that the cyclical properties identified in the data can be well explained by stochastic limit cycles forces, where the exogenous disturbances to the system are very short lived. This contrasts with results from most other macroeconomic models, which typically require very persistent shocks in order to explain macroeconomic fluctuations.
Keywords: business cycle; limit cycles; macroeconomic fluctuations
JEL Codes: E10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| booms (Q33) | busts (E32) |
| internal dynamics of the economy (E20) | cyclical behavior (E32) |
| economic agents' strategic interactions (C72) | booms (Q33) |
| stochastic limit cycles (C62) | cyclical fluctuations (E32) |
| cyclical behavior of the economy (E32) | spectral density of hours worked, unemployment, and capacity utilization (E24) |