The Stylized Facts about the Business Cycle

Nominal GDP, C, I and G

0.0

2,000.0

4,000.0

6,000.0

8,000.0

10,000.0

12,000.0

14,000.0

1946

1949

1952

1955

1958

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

Nominal GDP Nominal Consumption Nominal Investment Nominal Gov.Spend.

Real GDP, C, I and G

0

1

2

3

4

5

6

7

8

Real GDP Real C Real I Real G

Fraction of GDP allocated to C, I and G

0

10

20

30

40

50

60

70

80

C I G

Real GDP and Trend GDP

-50

0

50

100

150

200

19

47

19

49

19

51

19

53

19

56

19

58

19

60

19

62

19

65

19

67

19

69

19

71

19

74

19

76

19

78

19

80

19

83

19

85

19

87

19

89

19

92

19

94

19

96

19

98

20

01

20

03

20

05

Log Real GDP Trend Log Real GDP

Cyclical GDP

-5

-4

-3

-2

-1

0

1

2

3

4

5

Cyclical Log Real GDP

Cyclical GDP and C

-5

-4

-3

-2

-1

0

1

2

3

4

5

Cyclical Log Real GDP Cyclical Log Real Consumption

Cyclical GDP and C

-6

-4

-2

0

2

4

6

-8.00 -6.00 -4.00 -2.00 0.00 2.00 4.00 6.00

GDP

C

C Linear (C)

Cyclical GDP and I

-20

-15

-10

-5

0

5

10

15

20

Cyclical Log Real GDP Cyclical Log Real Investment

Cyclical GDP and I

-20

-15

-10

-5

0

5

10

15

20

-8.00 -6.00 -4.00 -2.00 0.00 2.00 4.00 6.00

GDP

I

C Linear (C)

Cyclical GDP and G

-20

-15

-10

-5

0

5

10

15

Cyclical Log Real GDP Cyclical Log Government Spending

Cyclical GDP and G

-20

-15

-10

-5

0

5

10

15

20

-8.00 -6.00 -4.00 -2.00 0.00 2.00 4.00 6.00

GDP

G

G Linear (G)

Employment

-4

-3

-2

-1

0

1

2

31

94

8

19

50

19

53

19

56

19

59

19

61

19

64

19

67

19

70

19

72

19

75

19

78

19

81

19

83

19

86

19

89

19

92

19

94

19

97

20

00

20

03

20

05

Pe

rce

nta

ge

De

via

tio

n f

rom

Tre

nd

Employment

Cyclical GDP and APL

-6

-4

-2

0

2

4

6

Cyclical Log Real GDP Cyclical Log Average Productivity of Labor

Table 2: Cyclical Behavior of the US Economy: Deviations from Trend of Expenditure Components, 1954:I-1991:II

Cross-Correlation of Output with:

Variable

SD X(-3) X(-2) X(-1) X X(+1) X(+2) X(+3)

GDP 1.72 .38 .63 .85 1 .85 .63 .38

C 1.27 .57 .72 .82 .83 .67 .46 .22

I 8.24 .38 .59 .79 .91 .76 .50 .22

G 2.04 -.03 -.01 -.01 .04 .08 .11 .16

Exp 5.53 -.29 -.10 .15 .37 .50 .54 .54

Imp 4.88 .31 .45 .62 .72 .71 .52 .28

Data Source: NIPA. All data are deflated and HP filtered

Table 1: Cyclical Behavior of U.S. Labor Market Aggregates, 1954:I-1991:II

Cross-Correlation of Real GDP with:

VariableVolatilit

y (%SD)

X(-5) X(-4) X(-3) X(-2) X(-1) XX(+1

)X(+2

)X(+3

)X(+4

)X(+5

)

Real Gross Domestic Product

1.72 -.02 .16 .38 .63 .85 .85 .63 .38 .16 -.02

Hours (Household Survey) 1.49 -.10 .05 .25 .46 .70 .86 .85 .74 .58 .38 .17

Employment 1.09 -.17 -.03 .16 .38 .63 .83 .88 .80 .65 .46 .25

Hours per Worker 0.54 .07 .20 .36 .49 .64 .70 .58 .42 .28 .12 -.02

GDP/Hours 0.87 .12 .23 .33 .47 .50 .51 .22 -.01 -.24 -.32 -.34

Average Hourly Real Compensation(Business Sector)

0.93 .35 .39 .41 .43 .41 .35 .25 .16 .05 -0.7 -.18

Real Employee Compensation (NIPA)/Hours (Household Survey)

0.65 -.11 -.11 -.13 .06 .02 .10 .13 .14 .10 .08 .04

Cross-Correlation of *:

Employment and Average Labor Productivity** (X)

1.09 .73 .68 .57 .35 .09 -.15 -.32

Vacanciesand Unemployment (X)

12.54 -.36 -.61 -.82 -.95 -.93 -.77 -.54

GNP and Labor Share (X) 1.07 -.61 -.73 -.78 -.74 -.48 -.22 -.00

Source: Finn E. Kydland (1995), (*) Source: M. Merz (1995) using CITIBASE data for the period 1959:I-1988:II, (**) Average Labor Productivity is defined as Real GNP over Employment

The Stylized Facts about the Business Cycle

• Output

– fluctuations in GDP are persistent

• Expenditure

– consumption is procyclical and less volatile than GDP

– investment is procyclical and 5 times as volatile as GDP

– government expenditures are acyclical

• Productivity

– the average output per hour of work is somewhat procyclical and leads the cycle

The Stylized Facts about the Business Cycle

• Labor Markets

– employment volatility accounts for 2/3 of the volatility of total hours

– hours-per-worker volatility accounts for 1/3 of the volatility of total hours

– employment is procyclical lags the cycle

– hors-per-worker are procyclical and lead the cycle

– total hours are procyclical and almost as volatile as GDP

References

• Chapters 2 and 3 in Williamson

• Check-out the website of the National Bureau of Economic Research http://www.nber.org

• Check-out the book "Frontier of Business Cycle Research," ed. T. Cooley, 1995, Princeton University Press