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Working Paper
Inflation and Real Activity over the Business Cycle
Bianchi, Francesco; Nicolo, Giovanni; Song, Dongho (2023-03)
We study the relation between inflation and real activity over the business cycle. We employ a Trend-Cycle VAR model to control for low-frequency movements in inflation, unemployment, and growth that are pervasive in the post-WWII period. We show that cyclical fluctuations of inflation are related to cyclical movements in real activity and unemployment, in line with what is implied by the New Keynesian framework. We then discuss the reasons for which our results relying on a Trend-Cycle VAR differ from the findings of previous studies based on VAR analysis. We explain empirically and ...
Finance and Economics Discussion Series , Paper 2023-038

Discussion Paper
Fifth District State Business Cycles
Scavette, Adam (2023-08-03)
To model national and state business cycles, this post first explores fluctuations of payroll employment around its long-run trend, comparing the correlation of the state-level employment fluctuations to the national series. Second, it explores how a popular rule of thumb recession indicator, the Sahm Recession Rule, performs when applied to state-level data compared to national data during the past four economic downturns. Third, this analysis not only provides us with insight into states' historical relationships with the U.S. business cycle, but it also reveals how they might fare in ...
Regional Matters

Report
Recent changes in the U.S. business cycle
Chauvet, Marcelle; Potter, Simon M. (2001)
The U.S. business cycle expansion that started in March 1991 is the longest on record. This paper uses statistical techniques to examine whether this expansion is a onetime unique event or whether its length is a result of a change in the stability of the U.S. economy. Bayesian methods are used to estimate a common factor model that allows for structural breaks in the dynamics of a wide range of macroeconomic variables. We find strong evidence that a reduction in volatility is common to the series examined. Further, the reduction in volatility implies that future expansions will be ...
Staff Reports , Paper 126

Briefing
How Expectations About Future Productivity Drive Inventories
Lubik, Thomas A.; Gortz, Christoph; Gunn, Christopher (2022-03)
To what extent do expectations about future productivity developments drive business cycles? This Economic Brief reviews the state of the literature and discusses how new research by the authors establishes a novel method to answer. We specifically focus on firms' inventories, which stock goods available for future sales. We find that these inventories expand strongly to news about future productivity developments. This confirms that expectations about future productivity are a powerful force behind aggregate fluctuations, a finding with important implications for widely used economic models.
Richmond Fed Economic Brief , Volume 22 , Issue 03

Working Paper
The Welfare Costs of Business Cycles Unveiled: Measuring the Extent of Stabilization Policies
Barros, Fernando; Luduvice, Andre; Gomes, Fabio (2022-04-21)
How can we measure the welfare benefit of ongoing stabilization policies? We develop a methodology to calculate the welfare cost of business cycles taking into account that observed consumption is partially smoothed. We propose a decomposition that disentangles consumption in a mix of laissez-faire (absent policies) and riskless components. With a novel identification strategy, we estimate the span of stabilization power. Our results show that the welfare cost of total fluctuations is 11 percent of lifetime consumption, of which 82 percent is smoothed by the status quo policies, yielding a ...
Working Papers , Paper 21-14r

Working Paper
Specification and Estimation of Bayesian Dynamic Factor Models: A Monte Carlo Analysis with an Application to Global House Price Comovement
Otrok, Christopher; Owyang, Michael T.; Kose, M. Ayhan; Jackson, Laura E. (2015-08-26)
We compare methods to measure comovement in business cycle data using multi-level dynamic factor models. To do so, we employ a Monte Carlo procedure to evaluate model performance for different specifications of factor models across three different estimation procedures. We consider three general factor model specifications used in applied work. The first is a single- factor model, the second a two-level factor model, and the third a three-level factor model. Our estimation procedures are the Bayesian approach of Otrok and Whiteman (1998), the Bayesian state space approach of Kim and Nelson ...
Working Papers , Paper 2015-31

Working Paper
How Foreign- and U.S.-Born Latinos Fare During Recessions and Recoveries
Orrenius, Pia M.; Zavodny, Madeline (2021-04-02)
Latinos make up the nation’s largest ethnic minority group. The majority of Latinos are U.S. born, making the progress and well-being of Latinos no longer just a question of immigrant assimilation but also of the effectiveness of U.S. educational institutions and labor markets in equipping young Latinos to move out of the working class and into the middle class. One significant headwind to progress among Latinos is recessions. Economic outcomes of Latinos are far more sensitive to the business cycle than are outcomes for non-Hispanic whites. Latinos also have higher poverty rates than ...
Working Papers , Paper 2104

Working Paper
The Welfare Costs of Business Cycles Unveiled: Measuring the Extent of Stabilization Policies
Barros, Fernando; Luduvice, Andre; Gomes, Fabio (2021-07-30)
How can we measure the welfare benefit of ongoing stabilization? We develop a methodology to calculate the welfare cost of business cycles taking into account that observed consumption is partially smoothed. We propose a decomposition that disentangles consumption in a mix of laissez-faire (absent policies) and riskless components. With a novel identification strategy, we estimate the span of stabilization power. Our results show that the welfare cost of total fluctuations is 5.81 percent of lifetime consumption, in which 80 percent is smoothed by the status quo, yielding a residual 1.05 ...
Working Papers , Paper 21-14

Working Paper
The Changing Nature of Technology Shocks
Gortz, Christoph; Gunn, Christopher; Lubik, Thomas A. (2024-11)
We document changes to the pattern of technology shocks and their propagation in post-war U.S. data. Using an agnostic identification procedure, we show that the dominant shock driving total factor productivity (TFP) is akin to a diffusion or news shock and that shock transmission has changed over time. Specifically, the behavior of hours worked is notably different before and after the 1980s. In addition, the importance of technology shocks as a major driver of aggregate fluctuations has increased over time. They play a dominant role in the second subsample, but much less so in the first. We ...
Working Paper

Report
Consumption heterogeneity, employment dynamics, and macroeconomic co-movement
Eusepi, Stefano; Preston, Bruce (2009)
Real-business-cycle models necessarily rely on total factor productivity shocks to explain the observed co-movement between consumption, investment, and hours. However, an emerging body of evidence identifies "investment shocks" as important drivers of business cycles. This paper shows that a neoclassical model consistent with observed heterogeneity in labor supply and consumption across employed and nonemployed can generate co-movement in response to fluctuations in the marginal efficiency of investment. Estimation reveals that these shocks explain the bulk of business-cycle variance in ...
Staff Reports , Paper 399

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