EconPapers    
Economics at your fingertips  
 

What's real about the business cycle?

James Hamilton

Review, 2005, vol. 87, issue Jul, 435-452

Abstract: This paper argues that a linear statistical model with homoskedastic errors cannot capture the nineteenth-century notion of a recurring cyclical pattern in key economic aggregates. A simple nonlinear alternative is proposed and used to illustrate that the dynamic behavior of unemployment seems to change over the business cycle, with the unemployment rate rising more quickly than it falls. Furthermore, many but not all economic downturns are also accompanied by a dramatic change in the dynamic behavior of short-term interest rates. It is suggested that these nonlinearities are most naturally interpreted as resulting from short-run failures in the employment and credit markets and that understanding these short-run failures is the key to understanding the nature of the business cycle.

Keywords: Unemployment; Interest rates; Business cycles (search for similar items in EconPapers)
Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

Downloads: (external link)
https://files.stlouisfed.org/files/htdocs/publications/review/05/07/Hamilton.pdf (application/pdf)

Related works:
Working Paper: What's Real About the Business Cycle? (2005) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlrv:y:2005:i:jul:p:435-452:n:v.87no.4

Access Statistics for this article

Review is currently edited by Juan M. Sanchez

More articles in Review from Federal Reserve Bank of St. Louis Contact information at EDIRC.
Bibliographic data for series maintained by Scott St. Louis ().

 
Page updated 2024-05-26
Handle: RePEc:fip:fedlrv:y:2005:i:jul:p:435-452:n:v.87no.4