Measuring Business Cycles by Saving for a Rainy Day

36 Pages Posted: 14 Jun 2010

See all articles by Mario J. Crucini

Mario J. Crucini

Vanderbilt University - College of Arts and Science - Department of Economics; National Bureau of Economic Research (NBER)

Mototsugu Shintani

Vanderbilt University - College of Arts and Science - Department of Economics

Date Written: June 2010

Abstract

We propose a simple saving-based measure of the cyclical component in GDP. The measure is motivated by the prediction that the represenative consumer changes savings in response to temporary deviations of income from its stochastic trend, while satisfying a present-value budget constraint. To evaluate our procedure, we employ the bivariate error correction model of Cochrane (1994) to the member countries of the G-7 and Australia. Our estimates reveal, that to a close approximation, the stochastic trend component of GDP is consumption and the transitory component is the error correction term, which justifies the use of our saving-based measure.

Suggested Citation

Crucini, Mario J. and Shintani, Mototsugu, Measuring Business Cycles by Saving for a Rainy Day (June 2010). NBER Working Paper No. w16075. Available at SSRN: https://ssrn.com/abstract=1624116

Mario J. Crucini (Contact Author)

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
United States
(615) 322-7357 (Phone)
(615) 343-8495 (Fax)

HOME PAGE: http://my.vanderbilt.edu/mariocrucini/about-me/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Mototsugu Shintani

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
United States

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