Metro Business Cycles

Maria A. Arias, Charles Gascon and David E. Rapach

No 2014-46, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We construct monthly economic activity indices for the 50 largest U.S. metropolitan statistical areas (MSAs) beginning in 1990. Each index is derived from a dynamic factor model based on twelve underlying variables capturing various aspects of metro area economic activity. To accommodate mixed-frequency data and differences in data-publication lags, we estimate the dynamic factor model using a maximum- likelihood approach that allows for arbitrary patterns of missing data. Our indices highlight important similarities and differences in business cycles across MSAs. While a number of MSAs experience sizable recessions during the national recessions of the early 1990s and early 2000s, other MSAs escape recessions altogether during one or both of these periods. Nearly all MSAs suffer relatively deep recessions near the recent Great Recession, but we still find significant differences in the depth of recent metro recessions. We relate the severity of metro recessions to a variety of MSA characteristics and find that MSAs with less-educated populations and less elastic housing supplies experience significantly more severe recessions. After controlling for national economic activity, we also find significant evidence of dynamic spillover effects in economic activity across MSAs.

Keywords: Economic activity index; metropolitan statistical areas; Recession; Dynamic factor model; latent variables; EM algorithm; Mixed regressive; spatial autoregressive model; Dynamic spillovers (search for similar items in EconPapers)
JEL-codes: C38 E32 R11 R31 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2014-11-11
New Economics Papers: this item is included in nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Journal Article: Metro business cycles (2016)
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DOI: 10.20955/wp.2014.046

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