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Towards an Understanding of Some Business Cycle Characteristics
Author(s) -
Pagan Adrian
Publication year - 1997
Publication title -
australian economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.308
H-Index - 29
eISSN - 1467-8462
pISSN - 0004-9018
DOI - 10.1111/1467-8462.00001
Subject(s) - business cycle , econometrics , recession , quarter (canadian coin) , economics , standard deviation , uncorrelated , work (physics) , asymmetry , variety (cybernetics) , simple (philosophy) , statistics , mathematics , macroeconomics , engineering , geography , physics , mechanical engineering , philosophy , epistemology , archaeology , quantum mechanics
For many years economists have debated the ‘causes’ of business cycles. Very little of this analysis has been closely matched with business cycle characteristics as measured by NBER‐type dating methods. After summarising data on business cycle characteristics for a wide variety of countries, the article shows that an extremely simple statistical model of output growth, viz. that it is uncorrelated from month to month or quarter to quarter, produces business cycles that are close to those seen in practice. The demonstration involves the analysis of data simulated from this simple statistical model as well as some analytical work using a standard definition of a recession as being two quarters of negative growth. As well as explaining the average length of a cycle this model also accounts for the asymmetry between the lengths of expansions and contractions through the relative magnitudes of the trend rate of growth of the economy and the standard deviation of the shocks that impinge upon it.