Recent Changes in the U.S. Business Cycle
37 Pages Posted: 23 Oct 2001
Date Written: April 2001
The US 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 US 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 considerably longer than the historical average.
Keywords: Recession, Common Factor, Business Cycle, Bayesian Methods
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