Business Cycle Durations and Postwar Stabilization of the U.S. Economy

38 Pages Posted: 29 Dec 2006 Last revised: 12 Dec 2022

See all articles by Mark W. Watson

Mark W. Watson

Princeton University - Princeton School of Public and International Affairs; National Bureau of Economic Research (NBER)

Date Written: March 1992

Abstract

The average length of business cycle contractions in the United States fell from 20.5 months in the prewar period to 10.7 months in the postwar period. Similarly, the average length of business cycle expansions rose from 25.3 months in the prewar period to 49.9 months in the postwar period. This paper investigates three explanations for this apparent duration stabilization. The first explanation is that shocks to the economy have been smaller in the postwar period. This implies that duration stabilization should be present in both aggregate and sectoral output data. The second explanation is that the composition of output has shifted from sectors that are very cyclical, like manufacturing, to sectors that are less cyclical, like services. This would lead to increased stability in aggregate output even in the absence of increased stability in the individual sectors. The third explanation is that the apparent stabilization is largely spurious, and is caused by differences in the way that prewar and postwar business cycle reference dates were chosen by the NBER. The evidence presented in this paper favors this third explanation.

Suggested Citation

Watson, Mark W., Business Cycle Durations and Postwar Stabilization of the U.S. Economy (March 1992). NBER Working Paper No. w4005, Available at SSRN: https://ssrn.com/abstract=476150

Mark W. Watson (Contact Author)

Princeton University - Princeton School of Public and International Affairs ( email )

Princeton University
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United States

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