Kim acknowledges support from the Korea Research Foundation under grant KRF-2002-C00196. Piger acknowledges support from the Grover and Creta Ensley Fellowship in Economic Policy. Startz acknowledges support from the National Science Foundation under grant SES9711301 and the Castor Professorship at the University of Washington. We received helpful comments from the editor, three anonymous referees, James Morley, Charles Nelson, Keith Sill, and seminar participants at the Federal Reserve's Spring 2001 System Meeting on Macroeconomics, the University of Bristol, the University of Virginia, the University of Washington, and Washington University. Responsibility for errors is entirely the authors'. This paper is based on chapter 3 of Piger's Ph.D. dissertation at the University of Washington, and was substantially revised while Piger was a Senior Economist at the Federal Reserve Bank of St. Louis. The views in this paper are solely the responsibility of the authors and should not be interpreted as reflecting the views of the Federal Reserve Bank of St. Louis or the Federal Reserve System.
The Dynamic Relationship between Permanent and Transitory Components of U.S. Business Cycles
Version of Record online: 18 JAN 2007
Journal of Money, Credit and Banking
Volume 39, Issue 1, pages 187–204, February 2007
How to Cite
KIM, C.-J., PIGER, J. M. and STARTZ, R. (2007), The Dynamic Relationship between Permanent and Transitory Components of U.S. Business Cycles. Journal of Money, Credit and Banking, 39: 187–204. doi: 10.1111/j.0022-2879.2007.00008.x
- Issue online: 18 JAN 2007
- Version of Record online: 18 JAN 2007
- Received September 12, 2002; and accepted in revised form November 8, 2005.
- business cycle;
This paper investigates the dynamic relationship between permanent and transitory components of post-war U.S. business cycles. We specify a time-series model for real GNP and consumption in which the two share a common stochastic trend and transitory component, and Markov-regime switching is used to model business cycle phases in these components. The timing of switches between business cycle phases is allowed to differ across the permanent and transitory components. We find strong evidence of a lead-lag relationship between the switches in the two components. Specifically, switches in the permanent component leads switches in the transitory component when entering recessions.