Whatever happened to the business cycle? a Bayesian analysis of jobless recoveries

Kristie Engemann and Michael Owyang

No 2007-013, Working Papers from Federal Reserve Bank of St. Louis

Abstract: During the typical recovery from U.S. post-War period economic downturns, employment recovers to its pre-recession level within months of the output trough. However, during the last two recoveries, employment has taken up to two years to achieve its pre-recession benchmark. We propose a formal empirical model of business cycles with recovery periods to demonstrate that the last two recoveries have been statistically different from previous experiences. We find that this difference can be attributed to a shift in the speed of transition between business cycle regimes. Moreover, we find this shift results from both durable and non-durable manufacturing sectors losing their cyclical characteristics. We argue that this finding of acyclicality in post-1980 manufacturing sectors is consistent with previous hypotheses (e.g., improved inventory management) regarding the reduction in macroeconomic volatility over the same period. These results suggest a link between the two phenomena, which have heretofore been studied separately.

Keywords: Business cycles; Labor market (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-bec and nep-mac
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Journal Article: WHATEVER HAPPENED TO THE BUSINESS CYCLE? A BAYESIAN ANALYSIS OF JOBLESS RECOVERIES (2010)
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