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The Brevity and Violence of Contractions and Expansions

Alisdair McKay () and Ricardo Reis

No 12400, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Early studies of business cycles argued that contractions in economic activity were briefer (shorter) and more violent (rapid) than expansions. This paper systematically investigates this claim and in the process discovers a robust new business cycle fact: expansions and contractions in output are equally brief and violent but contractions in employment are briefer and more violent than expansions. The difference arises because employment typically lags output around peaks but both series roughly coincide in their troughs. We discuss the performance of existing business cycle models in accounting for this fact, and conclude that none can fully account for it. We then show that a simple model that combines three familiar ingredients%u2013labor hoarding, a choice of when to scrap old technologies, and job training or job search%u2013can account for the business cycle fact.

JEL-codes: E32 E23 E24 J60 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec and nep-mac
Date: 2006-08
Note: EFG ME
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Published as McKay, Alisdair & Reis, Ricardo, 2008. "The brevity and violence of contractions and expansions," Journal of Monetary Economics, Elsevier, vol. 55(4), pages 738-751, May.

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Journal Article: The brevity and violence of contractions and expansions (2008) Downloads
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