101-2010-L5

101-2010-L5 - Econ101 Lecture 5 Business Cycle Measurement...

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    Econ 101 Lecture 5 Business Cycle Measurement Consumption and Leisure Decisions
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    Business Cycle Measurement Look at short run fluctuations in output and  other variables Peak : Maximum positive deviation from trend  Trough : Maximum negative deviation from  trend Business cycles are fluctuations around the trend
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    Figure 3.1  Idealized Business Cycle
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    Recessions Economic Definition: A negative deviation from the trend Newspaper Definition: A decline in GDP for two or more  consecutive quarters Not the same!
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    Figure 3.2  Percentage Deviations from Trend in  Real GDP from 1947--2006
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    Time series: what to look for? 1. variability  of fluctuations (are the  deviations relatively large or not?) 2. comovement  (do any two series move  together?) Robert Lucas: “ with respect to  comovement business cycles are all alike
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    Consumption
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    Investment
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    Price level
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    Money supply
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    Employment Procyclical ( ρ = 0 . 80 ) Lagging Less volatile ( σ E = 0.60 Y )
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    Productivity (GDP/E)
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    What Have We Learned? Business cycle statistics In terms of comovements, all business  cycles have similar properties less volatile Exceptions: money supply (leading),  employment (lagging), price level  (countercyclical), investment (more volatile)
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    From measuring to modeling It’s time to construct models of the economy and  use them as  laboratories  to understand and predict  macroeconomic events
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101-2010-L5 - Econ101 Lecture 5 Business Cycle Measurement...

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