Business Cycle Durations and Postwar Stabilization of the U.S. Economy

Mark Watson

No 4005, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The average length of business cycle contractions in the United States fell from 20.5 months in the prewar period to 10.7 months in the postwar period. Similarly, the average length of business cycle expansions rose from 25.3 months in the prewar period to 49.9 months in the postwar period. This paper investigates three explanations for this apparent duration stabilization. The first explanation is that shocks to the economy have been smaller in the postwar period. This implies that duration stabilization should be present in both aggregate and sectoral output data. The second explanation is that the composition of output has shifted from sectors that are very cyclical, like manufacturing, to sectors that are less cyclical, like services. This would lead to increased stability in aggregate output even in the absence of increased stability in the individual sectors. The third explanation is that the apparent stabilization is largely spurious, and is caused by differences in the way that prewar and postwar business cycle reference dates were chosen by the NBER. The evidence presented in this paper favors this third explanation.

Date: 1992-03
Note: EFG ME
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Citations: View citations in EconPapers (10)

Published as American Economic Review, March 1994

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Related works:
Journal Article: Business-Cycle Durations and Postwar Stabilization of the U.S. Economy (1994)
Working Paper: Business cycle durations and postwar stabilization of the U.S. economy (1992)
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