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Review_20100126

Review_20100126 - Econ 202(Winter 2010 review These notes...

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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 long-term 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. Chain-weighted 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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Review_20100126 - Econ 202(Winter 2010 review These notes...

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