Putting the Cycle Back into Business Cycle Analysis

Franck Portier (), Dana Galizia and Paul Beaudry

No 11647, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper begins by re-examining the spectral properties of several cyclically sensitive variables such as hours worked, unemployment and capacity utilization. For each of these series, we document the presence of an important peak in the spectral density at a periodicity of approximately 36-40 quarters. We take this pattern as suggestive of intriguing but little-studied cyclical phenomena at the long end of the business cycle, and we ask how best to explain it. In particular, we explore whether such patterns may reflect slow-moving limit cycle forces, wherein booms sow the seeds of the subsequent busts. To this end, we present a general class of models, featuring local complementarities, that can give rise to unique-equilibrium behavior characterized by stochastic limit cycles. We then use the framework to extend a New Keynesian-type model in a manner aimed at capturing the notion of an accumulation-liquidation cycle. We estimate the model by indirect inference and find that the cyclical properties identified in the data can be well explained by stochastic limit cycles forces, where the exogenous disturbances to the system are very short lived. This contrasts with results from most other macroeconomic models, which typically require very persistent shocks in order to explain macroeconomic fluctuations.

Keywords: Business cycles; Limit cycles (search for similar items in EconPapers)
JEL-codes: E24 E3 E32 (search for similar items in EconPapers)
Date: 2016-11
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Putting the Cycle Back into Business Cycle Analysis (2020)
Working Paper: Putting the Cycle Back into Business Cycle Analysis (2017)
Working Paper: Putting the Cycle Back into Business Cycle Analysis (2016)
Working Paper: Putting the Cycle Back into Business Cycle Analysis (2016)
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