Permanent and transitory components of business cycles: their relative importance and dynamic relationship

Chang-Jin Kim (), Jeremy Piger and Richard Startz

No 703, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper investigates the relationship between permanent and transitory components of U.S. recessions in an empirical model allowing for business cycle asymmetry. Using a common stochastic trend representation for real GNP and consumption, we divide real GNP into permanent and transitory components, the dynamics of which are different in booms vs. recessions. We find evidence of substantial asymmetries in postwar recessions, and that both the permanent and transitory component have contributed to these recessions. We also allow 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. The parameter estimates suggest a specific pattern of recessions: switches in the permanent component lead switches in the transitory component both when entering and leaving recessions.

Keywords: Business cycles; Recessions (search for similar items in EconPapers)
Date: 2001
New Economics Papers: this item is included in nep-dge and nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.federalreserve.gov/pubs/ifdp/2001/703/default.htm (text/html)
http://www.federalreserve.gov/pubs/ifdp/2001/703/ifdp703.pdf (application/pdf)

Related works:
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:fedgif:703

Access Statistics for this paper

More papers in International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().