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Lecture 5

Lecture 5 - Click to edit Master subtitle style Econ 101...

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Unformatted text preview: Click to edit Master subtitle style Econ 101 Lecture 5 Business Cycle Measurement Consumption and Leisure Decisions Problem Set 1 & 2 n PLEASE HAND IN PS1 AT THE END OF THE LECTURE n PS2 will be posted today, due next Wednesday What to read n Williamson, chapter 3 (today) n Williamson, chapter 4, pp. 102-112 (today) n Williamson, chapter 4, pp. 112-123 (Wednesday) n We’ll skip Chapter 2, 59-64 Business Cycle Measurement n Look at short run fluctuations in output and other variables n Peak : Maximum positive deviation from trend Business cycles are fluctuations around the trend Figure 3.1 Idealized Business Cycle Recessions n Economic Definition: n A negative deviation from the trend n Newspaper Definition: n A decline in GDP for two or more consecutive quarters n Not the same! Figure 3.2 Percentage Deviations from Trend in Real GDP from 1947--2006 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?) n Correlation & Leading/lagging n Robert Lucas: “ with respect to comovement , Consumption • Procyclical ( ρ = . 76 ) • Coincident • Less volatile ( σ E = 0.76 σ Y ) Investment • Procyclical ( ρ = . 84 ) • Coincident • More volatile ( σ E = 4.79 σ Y ) Price level • Countercyclical ( ρ = - .23 ) • Coincident • Less volatile ( σ E = 0.57 σ Y ) Money supply • Procyclical ( ρ = . 26 ) • Leading • Less volatile ( σ E = 0.60 σ Y ) Employment • Procyclical ( ρ = . 80 ) • Lagging • Less volatile ( σ E = 0.62 σ Y ) Productivity (GDP/E) • Procyclical ( ρ = . 81 ) • Coincident • Less volatile ( σ E = 0.62 σ Y ) What Have We Learned?What Have We Learned?...
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Lecture 5 - Click to edit Master subtitle style Econ 101...

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