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Unformatted text preview: Econ 202 (Winter 2010): review January 26, 2010 These notes are designed to brie&y summarize the main topics we have cov ered in 202. 0.1 Overview of course and Measuring business cycles 1. What is a business cycle? (a) The term business cycle or economic cycle refers to the &uctuations of economic activity (business &uctuations) around its longterm growth trend. The cycle involves shifts over time between periods of rela tively rapid growth of output (recovery and prosperity), and periods of relative stagnation or decline (contraction or recession). These &uctuations are often measured using the real gross domestic prod uct. Despite being termed cycles, these &uctuations in economic growth and decline do not follow a purely mechanical or predictable periodic pattern. (Wikipedia, 1/9/09) 0.2 Data issues 1. Some aggregate data issues ¡review de¢nition of GDP and real GDP. 2. Chainweighted GDP ¡see lecture notes on chained GDP. 3. Detrending data ¡we can think of most macroeconomic variables as con sisting of a trend component and a cyclical component: x t = x T t + x C t (a) Examples: i. Deterministic trends: x T t = a + bt x T t = a + bt + ct 2 ii. Formula for the HP ¢lter: min T X t =1 & x t & x T t ¡ 2 + & T X t =1 h & x T t +1 & x T t ¡ 2 & & x T t & x T t & 1 ¡ 2 i 1 For quarterly data, standard value of & is 1600 , for annual & = 6 : 25 , for monthly & = 100000 . (b) Lots of ways of separating the observed variable x into its unobserved trend and cyclical components, and di/erent methods can potentially produce di/erent results & an issue to keep inmind when you do empirical work....
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 Winter '08
 Ravenna,F
 Economics, Macroeconomics, Inflation, Unemployment, Keynesian economics, NAIRU

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