The Role of Oscillatory Modes in U.S. Business Cycles
Andreas Groth, Michael Ghil, Stéphane Hallegatte, Patrice Dumas
C15, C60, E32
Advanced Spectral Methods, Comovements, Frequency Domain, Monte Carlo testing, Time Domain
Economy and Society
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.