The Changing Cyclical Variability of Economic Activity in the United States

75 Pages Posted: 6 Jul 2004 Last revised: 9 Oct 2009

See all articles by J. Bradford DeLong

J. Bradford DeLong

University of California, Berkeley; Federal Reserve Bank of San Francisco; National Bureau of Economic Research (NBER)

Lawrence H. Summers

Harvard University; National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Date Written: September 1984

Abstract

This paper examines the changing cyclical variability of economic activity in the United States. It first shows that the decline in variability since World War II cannot be explained by changes in the composition of economic activity or by the avoidance of financial panics. We then show that increased automatic stabilization by the government, and the increased availability of private credit after World War II combined to stabilize consumption and reduce the variability of aggregate demand. The main argument of the paper holds that greater price rigidity in recent times may have contributed to economic stability by preventing destabilizing deflations and inflations. Empirical evidence is presented to support this proposition.

Suggested Citation

DeLong, James Bradford and Summers, Lawrence H., The Changing Cyclical Variability of Economic Activity in the United States (September 1984). NBER Working Paper No. w1450. Available at SSRN: https://ssrn.com/abstract=334281

James Bradford DeLong (Contact Author)

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Lawrence H. Summers

Harvard University ( email )

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Harvard University - Harvard Kennedy School (HKS) ( email )

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