Working Paper: NBER ID: w4643
Authors: Francis X. Diebold; Glenn D. Rudebusch
Abstract: In the first half of this century, special attention was given to two features of the business cycle: (1) the comovement of many individual economic series and (2) the different behavior of the economy during expansions and contractions. Both of these attributes were ignored in many subsequent business cycle models, which were often linear representations of a single macroeconomic aggregate. However, recent theoretical and empirical research has revived interest in each attribute separately. Notably, dynamic factor models have been used to obtain a single common factor from a set of macroeconomic variables, and nonlinear models have been used to describe the regime-switching nature of aggregate output. We survey these two strands of research and then provide some suggestive empirical analysis in an effort to unite the two literatures and to assess their usefulness in a statistical characterization of business- cycle dynamics.
Keywords: business cycles; comovement; regime switching; dynamic factor models; nonlinear models
JEL Codes: E32; C32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| common shocks (E32) | comovement of individual economic series (C10) |
| comovement of individual economic series (C10) | synchronized expansions and contractions (E32) |
| regime-switching nature of business cycles (E32) | likelihood of turning points in the business cycle (E32) |
| current economic state (E66) | future transitions in business cycles (E32) |