Fooled by the Cycle: Permanent Versus Cyclical Improvements in Social Indicators

30 Pages Posted: 3 Sep 2019 Last revised: 11 Sep 2019

See all articles by José Andrée Camarena

José Andrée Camarena

World Bank

Luciana Galeano

World Bank

Luis Morano

World Bank

Jorge Puig

Universidad Nacional de La Plata

Daniel Riera-Crichton

Bates College

Carlos A. Vegh

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS); University of Maryland - Department of Economics; University of California at Los Angeles; National Bureau of Economic Research (NBER)

Lucila Venturi

World Bank

Guillermo Javier Vuletin

World Bank

Date Written: August 2019

Abstract

This paper studies the time-series behavior of a set of widely-used social indicators and uncovers two important stylized facts. First, not all social indicators are created equal in terms of the importance of cyclical fluctuations. While some social indicators such as the unemployment rate and monetary poverty show large cyclical fluctuations, other social measures such as the Human Development Index are, by construction, dominated by long-run trends. Second, a large fraction of the cyclical fluctuations in social indicators can be explained by the cyclical changes in income (proxied by real GDP per capita). Since cyclical income volatility is much larger in the developing world, these two critical facts raise fundamental issues regarding how permanent are improvements in social indicators (like the ones observed in many developing countries during the last commodity super-cycle). Finally, and relying on a global sample of industrial and developing countries, we dig deeper into the importance of cyclical versus permanent components by extending the seminal contribution of Datt and Ravallion (1992). In particular, we show that more than 40 percent of the fall in monetary poverty observed in Latin America and the Caribbean during the so-called Golden Decade can be attributed to cyclical changes in income.

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Suggested Citation

Camarena, José Andrée and Galeano, Luciana and Morano, Luis and Puig, Jorge and Riera-Crichton, Daniel and Vegh, Carlos A. and Venturi, Lucila and Vuletin, Guillermo Javier, Fooled by the Cycle: Permanent Versus Cyclical Improvements in Social Indicators (August 2019). NBER Working Paper No. w26199, Available at SSRN: https://ssrn.com/abstract=3446509

José Andrée Camarena (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Luciana Galeano

World Bank ( email )

Luis Morano

World Bank ( email )

Jorge Puig

Universidad Nacional de La Plata ( email )

7 Nº 776
Buenos Aires, BA 1900
Argentina

Daniel Riera-Crichton

Bates College ( email )

Lewiston, ME 04240
United States

Carlos A. Vegh

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS) ( email )

1740 Massachusetts Avenue, NW
Washington, DC 20036-1984
United States

University of Maryland - Department of Economics ( email )

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University of California at Los Angeles ( email )

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National Bureau of Economic Research (NBER)

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Lucila Venturi

World Bank ( email )

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Washington, DC 20433
United States

Guillermo Javier Vuletin

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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