1. Business Cycle Measurement
Chapter 3
Business Cycle Measurement

2. Business Cycles
What are they? Fluctuations about the trend in real GDP.
Features of Business Cycles
Peaks
Troughs
Turning Points
Amplitude: maximum deviation from trend
Frequency: # of peaks in real GDP that occur per year
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3. Figure 3.1 Idealized Business Cycles
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4. Figure 3.2 Percentage Deviations from Trend in Real GDP: 1947--2003
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5. Business Cycle Regularities
Business Cycles are Persistent
Deviations from Trend are Choppy
Variability in Amplitude
Variability in Frequency
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6. Co-movement Macro variables tend to fluctuate together
Can we measure this co-movement?
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7. Correlation Time Series Comparisons Scatter Plots
Correlation Coefficient
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8. Figure 3.3 Time Series Plots of x and y
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9. Figure 3.4 Correlations Between Variables y and x
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10. Cyclical Properties
Procyclical: the deviations from trend are positively correlated with the deviations from trend in real GDP.
Countercyclical: the deviations from trend are negatively correlated with the deviations from trend in real GDP.
Acyclical:
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11. Figure Imports and GDP
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12. Figure 3.6 Scatter Plot of Imports and GDP
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13. Imports are procyclical
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14. Timing Leading Lagging Coincident
The Index of Leading Indicators: we can use it to predict future real GDP
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15. Figure 3.7 Leading and Lagging Variables
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16. Figure 3.8 Percentage Deviations from Trend in Real GDP (colored line) and the Index of Leading Economic Indicators (black line) for 1959–2003
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17. Volatility
The patterns of variability of macro variables are an important part of business cycle behavior.
We use standard deviation to measure it.
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18. Figure 3.9 Percentage Deviations from Trend in Real Consumption (black line) and Real GDP (colored line)
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19. Figure Percentage Deviations from Trend in Real Investment (black line)and Real GDP (colored line)
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20. Figure Scatter Plot for the Percentage Deviations from Trend in the Price Level (the Implicit GDP Price Deflator) and Real GDP
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21. Figure 3.12 Price Level and GDP
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22. Figure Percentage Deviations from Trend in the Money Supply (black line) and Real GDP (colored line) for the Period 1959–2003
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23. Figure 3.14 Percentage Deviations from Trend in Employment (black line) and Real GDP (colored line)
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24. Figure Percentage Deviations from Trend in Average Labor Productivity (black line) and Real GDP (colored line) for 1948–2003
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25. Table 3.1 Correlation Coefficients and Variability of Percentage Deviations from Trend
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26. Table 3.2 Summary of Business Cycle Facts
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