The stylised facts of Australia's business cycle

This paper reassesses the ‘stylised facts’ of Australia's contemporary business cycle, by calculating select moments of the cyclical components in quarterly postwar macroeconomic data. In particular, the robustness of the cross-correlation sample moments to the detrending procedure are considered, using both the Hodrick-Prescott (1980) detrending procedure and the unobserved components model developed by Harvey (1985, 1989). The results presented show that under both detrending methods, the anticipated cross-correlation between output and the important real business cycle variables are supportive of the basic real business cycle model for Australia, with one or two exceptions, the most important of which is the behaviour of the real interest rate.     

Endogenous Money Supply and the Business Cycle

This paper documents changes in the cyclical behavior of nominal data series that appear after 1979:Q3 when the Federal Reserve implemented a policy to lower the inflation rate. Such changes were not apparent in real variables. A business cycle model with impulses to technology and a role for money is used to show how alternative money supply rules are expected to affect observed business cycle facts. In this model, changes in the money supply rules have almost no effect on the cyclical behavior of real variables, yet have a significant impact on the cyclical nature of nominal variables.Journal of Economic LiteratureClassification Numbers: E32, E42, E50.     

What is the Real Story for Interest Rate Volatility?

What is the source of interest rate volatility? Why do low interest rates precede business cycle booms? Most observers tend to assume that monetary policy is largely responsible for it. Indeed, a standard real business cycle model delivers rather small fluctuations in real interest rates. Here, however, we present two models of the real business cycle variety, in which the fluctuations of real rates are of similar magnitude as in the data, while simultaneously matching salient business cycle facts. The second model also replicates the cyclical behavior of real interest rates. The models build on recent work by Danthine and Donaldson, Jermann, and Boldrin, Christiano and Fisher. We assume that there are workers and capital owners. The first model posits habit formation and adjustment costs to the stock of capital. The second model assumes that it takes time to plan investment and time to build capital.     

Empirical Evidence on the Austrian Business Cycle Theory

The Austrian business cycle theory suggests that a monetary shock disturbs relative prices, such as the term structure of interest rates, systematically altering profit rates across economic sectors. Resource use responds to those changes, generating a cyclical pattern of real income. The divergence of the interest rate structure, from the previous and unchanged time preferences, means that the expansion is unsustainable and must end in recession. Quarterly data for eight U.S. business cycles, 1950:1 through 1991:1 are standardized by time period and used to explore business cycle facts and relations between money, interest rates, capacity utilization and income. Results are consistent with the hypotheses of the Austrian theory of a business cycle caused by a monetary shock and propagated by relative price changes.     

A real business cycle model with tradable and non-tradable goods for the Spanish economy

Over the last years, the business cycles of the Spanish economy have been analyzed from different points of view. Under the paradigm of the real business cycles, the standard model has been extended in several dimensions. However, none of them have taken into account the fact that in this economy the presence of non-tradable goods is one of the largest in the world. When this feature is properly taken into account, the modeled real business cycle small open economy, calibrated for Spanish data, is able to explain several distinct stylized facts for this economy. In particular, it explains the larger than standard volatility of private consumption, and the different cyclical properties of inflation for non-tradable and tradable goods. Furthermore, the theoretical model is able to adequately explain some other cyclical properties of Spanish macroeconomic variables, both at the aggregate and sectoral levels.     

ESTIMATES OF THE AGGREGATE QUARTERLY CAPITAL STOCK FOR THE POST-WAR U.S. ECONOMY

We construct quarterly aggregate gross and net capital stock series for the post-war U.S. economy using annual capital stock, capital depreciation, and capital discard figures along with quarterly investment series. We construct nominal and real measures of all three categories in the aggregate capital stock: consumer durable goods, producer durable goods, and business structures. In constructing the nominal series we take into account the changes in capital goods' prices. The series are constructed using four different methods. Using time- and frequency-domain techniques, we compare the constructed series and characterize their short-run, business cycle, and long-run cyclical properties. We find that the constructed series exhibit very different cyclical and shock persistence dynamics. Practial implications are discussed.     

An International Perspective on Asymmetries in Consumers' Expenditure

Data on real consumers' expenditure for seven major OECD economies(Australia, Canada, France, Germany, Japan, the UK and the US) are subjectedto Sichel's (1993) tests of business cycle asymmetry. The results derivedshow that the high cross-country correlations in consumers' expenditure maskvery different underlying cyclical properties. Interestingly, while Franceand Germany fail to exhibit any type of asymmetric adjustment, asymmetry ofsome form and to some degree is present for all of the other economiesconsidered. The implications of these findings are discussed.     

Output dynamics of the G7 countries--stochastic trends and cyclical movements

Using a time series framework, the paper studies the interactions of the annual real per capita GDP data of the G7 countries. Evidence is found of six common nonstationary processes behind the international output dynamics. In addition, there is evidence for the existence of a common business cycle among these countries. The trend and cycle components of each output series are obtained with a procedure that accounts for the presence of both the common nonstationary and cyclical factors. It is found that the relative variability and the correlation of the trend and cycle components are not similar across the G7 countries.     

Cyclical industrial dynamics: The case of the global semiconductor industry

In this paper, we focus on firms' cyclical behavior in the global semiconductor industry. We demonstrate that these cyclical dynamics at the industry level differ from both the business cycles at the macro-economic level and the lengthy industrial technology life cycle. We discuss a range of possible causes of those cyclical industrial dynamics, including the general business cycles as well as industry-specific factors. Our study reports three stylized facts in relation to the cyclical industrial dynamics in the global semiconductor industry: first, the industry is more concentrated during the industry cycle downturns; second, the capital investment of the industry as a whole follows a ‘pro-cyclical’ pattern; and third, firms that pursued a ‘counter-cyclical’ capital investment strategy during the industry cycle downturn have reaped rewards during the subsequent cycle period. These facts suggest that cyclical industrial dynamics, especially the industry cycle downturns, play an important role in firm rivalry, strategic positioning and industrial growth.     

MONEY,CAPITAL, AND EXCHANGE RATE FLUCTUATIONS*

We explore how the informational frictions underlying monetary exchange affect international exchange rate dynamics. Our perfectly flexible price model is capable of producing endogenously rigid international relative prices in response to technology and monetary shocks. The model is capable of accounting for the empirical regularities that the real and nominal exchange rates are more volatile than U.S. output, and that the two are positively and perfectly correlated. The model is also consistent with other standard real business cycle facts for the United States.     

Detrending methods and stylized facts of business cycles in Norway – an international comparison

This paper analyses the stylized facts of business cycles in Norway, by comparing different detrending methods. As the choice of the appropriate data transformation depends on the nature of the underlying dynamic properties of the time series, a set of unit root tests are first applied to the data. The detrended data are analysed, both in the time domain and the frequency domain. The evidence suggests that whereas some variables (e.g. consumption and investment) behave consistently procyclically with GDP, for other variables (e.g. real wage and prices), the business cycle properties vary considerably with the detrending methods used. The results are evaluated from a real business cycle perspective, but overall, there is little evidence to support a (supply driven) real business cycle. Symmetries in business cycles are finally analysed by comparing the business cycles in Norway and selected countries. First version received: April 1997 / Final version received: November 1999     

BUSINESS CYCLES IN SINGAPORE: STYLIZED FACTS FOR A SMALL OPEN ECONOMY

This paper sets out to discover the salient characteristics of economic fluctuations in the small open economy of Singapore. To this end, band‐pass filters and unobserved components models are first used to extract the cyclical components in macroeconomic variables. The extent to which domestic business cycles are influenced by foreign economic cycles with regards to their persistence, comovement and volatility properties are then assessed using time‐series statistics. The paper also documents how shocks originating from abroad are propagated to the broader economy. Although it is found that idiosyncratic features are present in Singapore's macroeconomic fluctuations, there are also stylized business cycle facts to be learnt about small open economies in general.     

Micro versus macro consumption data: the cyclical properties of the consumer expenditure survey

The Consumer Expenditure Survey (CEX) offers the most comprehensive consumption data at the consumer level for the United States. Several previous studies have shown a large gap between per-capita consumption from the CEX and the aggregate Personal Consumption Expenditure (PCE) series. While previous research has focused on consumption levels, we focus on the cyclical properties of consumption. We find that the cyclical properties of consumption expenditure data from the two sources are quantitatively very different. This result calls for caution when using CEX data for business cycle research.     

HOUSE PRICES,SALES, AND TIME ON THE MARKET: A SEARCH‐THEORETIC FRAMEWORK

We assess the ability of a standard search and matching framework to account for the cyclical properties of key macroeconomic time series of the housing market. We calibrate a model with aggregate demand and supply shocks to match selected business cycle properties of vacancies and sales in the United States. Our model reproduces the cyclical time series properties of house prices and the positive and negative comovement of prices with sales and time on the market, respectively. Search and matching frictions produce trading delays that augment the volatility of prices and propagate the effect of aggregate shocks to future periods.     

Business Cycles Between Developed and Developing Economies

This paper compares the stylized facts of international real business cycles between developed and developing countries. A two-sector two-country real business cycles model is constructed to examine the cyclical behaviors of domestic as well as international macroeconomic variables, and to evaluate the model's consistency with empirical observations. The model predicts correctly that consumption, investment, and saving are procyclical, while the trading balance/output ratio is countercyclical. There exist, however, some discrepancies between the model and the data.     

Equilibrium business cycles with idle resources and variable capacity utilization

Summary A real business cycle economy is studied in which some capital is idle each period and the fraction of capital left idle varies in response to technology shocks. Previous equilibrium business cycle models have the characteristic that the entire stock of capital is used for production in each period. Our objective is to determine whether incorporating idle resources, something regularly observed in actual economies, significantly affects the cyclical properties of the model and hence changes our views about the importance of technology shocks for aggregate fluctuations. In our analysis we do not assume an aggregate production function, but instead model production as taking place at individual plants that are subject to idiosyncratic technology shocks. Each period the plant manager must choose whether to operate the plant or to let the plant remain idle. We find that the cyclical properties of this model are surprisingly similar to those of a standard real business cycle economy. One difference is that the model displays variation in factor shares while the standard models does not.The authors acknowledge support from the National Science Foundation.     

中国经济周期波动的典型化事实:一个基于CF滤波的研究

从宏观时间序列经验特征中概括经济周期波动的典型化事实是经济学研究的一项重要课题,也是当前中国经济周期波动研究的欠缺所在.本文采集23个主要宏观经济变量数据,运用新近提出的CF滤波,分解得到它们的周期性成分,并计算这些周期性成分的标准差、自相关系数以及它们之间的时差相关系数.在此基础上,分析了中国经济周期波动的经验特征,总结出中国经济周期波动的典型化事实,并与美国的研究结果加以对比,揭示出中国经济周期波动经验特征和典型化事实的一般性和特殊性.本文的研究进一步验证了Lucas(1977)命题,也有助于为相关理论发展和宏观调控操作提供参照和借鉴.     

Demand shocks,supply shocks and the cyclicality of real wages

The behaviour of real wages over the business cycle has received increasiing attention in recent years. The cyclicality of real wages constitues an important aspect of recent models of the business cycle. However,empirical studies undertaken to determine whether real wages are procyclical or countercyclical have reported conflicting findings. In thiis paper we use vector-autoregressions to analyse the cyclicality of real wages. We find that the source of the disturbance plays a decisive role in the cyclical behaviour of real wages. In particular, we demonstrate that a supply shock generates procyclical real wages,whereas a demand shock yields countercyclicality.     

Further evidence on business cycle asymmetries in G7 countries

This paper tests for business cycle symmetry in G7 countries during the post-World War II period using a number of tests, each reflecting alternative definitions of business cycle asymmetry. The tests are applied to monthly coincident economic indicators of business cycles. This found that business cycles in the US are characterized by both longitudinal (deepness) and transversal (steepness and sharpness) asymmetries: further, it is found that asymmetric transition probabilties and time irreversibility are due to nonlinearities. On the contrary, business cycles in Germany exhibits a symmetric behaviour. Between these extremes are the other countries, for which at least one of the tests here considered rejects the null of cyclical symmetry. Particularly, business cycle is characterized by deepness and sharpness in Canada, asymmetry in persistence in France and Japan, and asymmetric transition probabilities in France and United Kingdom.     

Financial variables as leading indicators in Greece

This paper presents business cycle stylized facts for the Greek economy and extends the relevant Greek literature in the following directions. First, the index of industrial production (IOP) is used to represent real economic activity and business cycle conditions. Second, the behavior of certain financial variables throughout the various phases of the business cycle is analyzed in order to assess their leading indicator properties. Third, possible non-linearities in these variables are investigated and tested for their relation to the business cycle states. The results imply that the most reliable leading indicators are real Treasury bill rates. Volatilities of real short-term interest rates may also contain useful predictive information for IOP volatility. Finally, mean non-linearities seem to be associated with business cycle asymmetries in the mean. The author wishes to express his gratitude to conference participants at the 55th International Atlantic Economic Conference held in Vienna, Austria, March 12–16, 2003, and an anonymous referee for their valuable comments and suggestions. The author is responsible for any shortcomings in the paper.