TITLE

Permanent and Transitory Components of Business Cycles: Their Relative Importance and Dynamic Relationship

AUTHOR(S)
Chang-Jin Kim; Piger, Jeremy; Startz, Richard
PUB. DATE
January 2001
SOURCE
Working Papers -- U.S. Federal Reserve Board's International Fin;2001, p1
SOURCE TYPE
Working Paper
DOC. TYPE
Working Paper
ABSTRACT
This paper examines the relationship between permanent and transitory components of United States recessions in an empirical model allowing for business cycle asymmetry. Utilizing a common stochastic trend representation for real gross national product (GNP) and consumption, the authors divide real GNP into permanent and transitory components, the dynamics of which are different in booms vs. recessions. The analysis finds evidence of substantial asymmetries in postwar recessions, and that both the permanent and transitory component have contributed to these recessions. This study also allows for the timing of switches from boom to recession for the permanent component to be correlated with switches from boom to recession in the transitory component. Parameter estimates indicate a specific pattern of recessions: switches in the permanent component lead to switches in the transitory component, both when entering and leaving recessions. This working paper can be found at the United States Federal Reserve Board's International Finance Discussion Papers. You can access it by going to http://www.federalreserve.gov/pubs/ifdp/.
ACCESSION #
9688271

 

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