Topic 08 - Business Cycles(1)

Topic 08 - Business Cycles(1) - BUAD 350 Topic 08 Real...

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BUAD 350 Topic 08 – Real Business Cycles
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Keywords Characterizing cycles US business cycle facts The real business cycle theory Policy implications
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Characterizing Cycles Business Cycles are recurring but irregular fluctuations in real GDP around a trend over short periods of time The period of time when real GDP is falling is a contraction or a recession . (A severe recession is a depression .) The period when real GDP grows is an expansion or a boom
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Characterizing Cycles (contd.) The entire sequence, measured from peak to peak or trough to trough is a business cycle Peaks and troughs are called turning points These points are catalogued by the National Bureau of Economic Research (NBER)
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Characterizing Cycles (contd.) The data used to analyze business cycles are usually organized as quarterly time series of real GDP, investment, money supply, etc.
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Characterizing Cycles (contd.) We are interested in 2 features of the data: 1 Which variables are most volatile (as measured by the standard deviation around the trend)? 2 Does a given variable cyclically comove in the same direction with real GDP ( procyclical ) or in the opposite direction ( countercyclical )? That is, is the correlation coefficient with GDP positive or negative?
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Non Durable and Service Consumption Investment Durable Goods Consumption
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Business cycles
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US Business Cycle Facts Key facts on US business cycles: St.Dev. Corr. With real GDP Real GNP .016 1.00 Consumption .011 0.74 Investment .070 0.91 Govt. Purchases .022 0.04 Worker hours 0.85 Unemployment rate -0.93 M1 0.30 M2 0.43
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Consumption
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Figure 8.04 Cyclical behavior of employment
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Figure 8.05 Cyclical behavior of unemployment
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US Business Cycle: Key Facts Summary: The average deviation of real GDP from its trend is 1.7% per quarter Consumption is a lot less volatile than real GDP (Why?) Investment is a lot more volatile than real GDP -- about 4 times as volatile Government purchases are essentially acyclical
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Summary: Number of civilians employed and total hours worked are procyclical The unemployment rate is countercyclical Durable goods consumption is much more volatile than non-durable goods consumption Which is more volatile? Colgate-Palmolive, Kellogg Ford, Dell, Sony US Business Cycle: Key Facts
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How does the 2008 recession compare to the previous ones? Payroll Employment
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This note was uploaded on 02/15/2011 for the course BUAD 350 at USC.

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Topic 08 - Business Cycles(1) - BUAD 350 Topic 08 Real...

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