FEEM working papers "Note di lavoro" series
2012 .026

The Role of Oscillatory Modes in U.S. Business Cycles


Authors: Andreas Groth, Michael Ghil, Stéphane Hallegatte, Patrice Dumas
Series: Economy and Society
Editor: Giuseppe Sammarco
Keywords: Advanced Spectral Methods, Comovements, Frequency Domain, Monte Carlo testing, Time Domain
JEL n.: C15, C60, E32

Abstract

We apply the advanced time-and-frequency-domain method of singular spectrum analysis to study business cycle dynamics in a set of nine U.S. macroeconomic indicators. This method provides a robust way to identify and reconstruct shared oscillations, whether intermittent or modulated. We address the problem of spurious cycles generated by the use of detrending filters and present a Monte Carlo test to extract significant oscillations. Finally, we demonstrate that the behavior of the U.S. economy changes significantly between episodes of growth and recession; these variations cannot be generated by random shocks alone, in the absence of endogenous variability.

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