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The Changing Nature of Sectoral Comovement

Christian vom Lehn () and Thomas Winberry
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Thomas Winberry: University of Chicago

No 277, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: The correlation of output and employment across sectors in the economy -- comovement -- is the defining feature of the business cycle. In this paper, we study how industry comovement patterns in US business cycles have changed over time. We first show that the correlation of output across sectors has fallen since the 1980s, but the correlation of employment across sectors has not. We then build a model featuring input-output linkages in production in both final goods and investment goods which is consistent with these facts. Finally, we use the model to explore the link between changes in comovement patterns across sectors and changes in aggregate dynamics. We find a significant role for comovement in both the decline of GDP volatility and the rise in the volatility of employment relative to output since the 1980s.

Date: 2018
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