The dynamic relationship between permanent and transitory components of U.S. business cycles

Chang Jin Kim, Jeremy M. Piger, Richard Startz

Research output: Contribution to journalReview article

9 Citations (Scopus)

Abstract

This paper investigates the dynamic relationship between permanent and transitory components of post-war U.S. business cycles. We specify a time-series model for real GNP and consumption in which the two share a common stochastic trend and transitory component, and Markov-regime switching is used to model business cycle phases in these components. The timing of switches between business cycle phases is allowed to differ across the permanent and transitory components. We find strong evidence of a lead-lag relationship between the switches in the two components. Specifically, switches in the permanent component leads switches in the transitory component when entering recessions.

Original languageEnglish
Pages (from-to)187-204
Number of pages18
JournalJournal of Money, Credit and Banking
Volume39
Issue number1
DOIs
Publication statusPublished - 2007 Feb

Keywords

  • Asymmetry
  • Business cycle
  • Fluctuations
  • Markov-switching

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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