Measuring Business Cycles - Penn strongEconomicsstrong.pdf

Diebold, F.X. and Rudebusch, G. (1996), Measuring Business Cycles: A Modern Perspective, Review of Economics and Statistics, 78, 67-77. Measuring Business Cycles: A Modern Perspective Francis X. Diebold University of Pennsylvania Glenn D. Rudebusch Federal Reserve Bank of San Francisco This Print: June 27, 1996 Abstract : In the first half of this century, special attention was given to two features of the business cycle: the comovement of many individual economic series and the different behavior of the economy during expansions and contractions. Recent theoretical and empirical research has revived interest in each attribute separately, and we survey this work. Notable empirical contributions are dynamic factor models that have a single common macroeconomic factor and nonlinear regime-switching models of a macroeconomic aggregate. We conduct an empirical synthesis that incorporates both of these features. JEL Classification Codes: E32, C22 I. Introduction It is desirable to know the facts before attempting to explain them; hence, the attractiveness of organizing business-cycle regularities within a model-free framework. During the first half of this century, much research was devoted to obtaining just such an empirical characterization of the business cycle. The most prominent example of this work was Burns and Mitchell (1946), whose summary empirical definition was: Business cycles are a type of fluctuation found in the aggregate economic activity of nations that organize their work mainly in business enterprises: a cycle consists of expansions occ