Measuring Business Cycles by Saving for a Rainy Day

Mario Crucini () and Mototsugu Shintani

No 16075, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We propose a simple saving-based measure of the cyclical component in GDP. The measure is motivated by the prediction that the represenative consumer changes savings in response to temporary deviations of income from its stochastic trend, while satisfying a present-value budget constraint. To evaluate our procedure, we employ the bivariate error correction model of Cochrane (1994) to the member countries of the G-7 and Australia. Our estimates reveal, that to a close approximation, the stochastic trend component of GDP is consumption and the transitory component is the error correction term, which justifies the use of our saving-based measure.

JEL-codes: E3 (search for similar items in EconPapers)
Date: 2010-06
Note: EFG IFM
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Published as Mario J. Crucini & Mototsugu Shintani, 2015. "Measuring international business cycles by saving for a rainy day," Canadian Journal of Economics/Revue canadienne d'économique, vol 48(4), pages 1266-1290.

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Working Paper: Measuring business cycles by saving for a rainy day (2010)
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