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ch8notes - Business Cycle Analysis What do we mean by...

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Business Cycle Analysis What do we mean by unusually high? What do we mean by unusually low? Consider the weather. 50 ° in January is considered warm. 50 ° in July is considered cold. Temperature relative to trend. Decomposition Analysis We can do the same with GDP, etc. Standard procedures for constructing trend.
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Cyclical Quantity = Actual Quantity – Trend Quantity. Cyclical Q’s allow us to define cycles. High GDP: Cyclical GDP > 0. Low GDP: Cyclical GDP < 0. Same for C, I, r, w, N, etc. Procyclical Variables: Cyclical Q > 0 Cyclical GDP > 0 Countercyclical Variables: Cyclical Q < 0 Cyclical GDP > 0 B.C.’s are more alike than different Some Q’s are consistently procyclical. Some Q’s are consistently countercyclical.
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Stylized Facts Employment (P) Productivity (P) Real Wage Rate (P) Consumption (P) Investment (Extremely P) Real Interest Rate (P or A) Prices/Inflation (?: C after WWII) Money Supply (P)
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Classical Theory and the 'Stylized Facts' Fluctuations in Y Require Labor Mkt. Shocks NS Shocks: NS Y , N , w , Y/N?
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