Recent Changes in the U.S. Business Cycle
37 Pages Posted: 9 Aug 2006
Date Written: April 2001
The U.S. 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 U.S. 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: business cycle, recession, dynamic factor, bayesian
JEL Classification: E52, C53
Suggested Citation: Suggested Citation