States and the Business Cycle

FRB of St. Louis Working Paper No. 2007-050B

38 Pages Posted: 21 Nov 2007

See all articles by Michael Owyang

Michael Owyang

Federal Reserve Bank of St. Louis - Research Division

David E. Rapach

Seattle University, Albers School of Business and Economics

Howard J. Wall

Lindenwood University - Center for Economics and the Environment

Date Written: October 2008

Abstract

We model the U.S. business cycle using a dynamic factor model that identifies common factors underlying fluctuations in state-level income and employment growth. We find three such common factors, each of which is associated with a set of factor loadings that indicate the extent to which each state's economy is related to the national business cycle. According to the factor loadings, there is a great deal of heterogeneity in the nature of the links between state and national economies. In addition to exhibiting geographic patterns, the closeness of state economies to the national business cycle is related not only to differences in industry mix but also to non-industry variables such as agglomeration and neighbor effects. Finally, we find that the common factors tend to explain large proportions of the total variability in state-level business cycles, although, again, there is a great deal of cross-state heterogeneity.

Keywords: State business cycles, Common factors

JEL Classification: E32, R12

Suggested Citation

Owyang, Michael T. and Rapach, David E. and Wall, Howard J., States and the Business Cycle (October 2008). FRB of St. Louis Working Paper No. 2007-050B, Available at SSRN: https://ssrn.com/abstract=1031689 or http://dx.doi.org/10.2139/ssrn.1031689

Michael T. Owyang (Contact Author)

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
Saint Louis, MO 63011
United States

David E. Rapach

Seattle University, Albers School of Business and Economics ( email )

900 Broadway
Seattle, WA 98122
United States
206-296-5705 (Phone)

Howard J. Wall

Lindenwood University - Center for Economics and the Environment ( email )

209 S. Kingshighway
St. Charles, MO 63301
United States

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