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Recent Changes in the US Business Cycle

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Abstract:

The US business cycle expansion that started in March 1991 is the longest on record. In this paper we use statistical techniques to examine whether this expansion is a one-time unique event or whether its length is a result of a change in the stability of the US economy. Bayesian methods are used to estimate a common factor model that allows for structural breaks in the dynamics of a wide range of macroeconomic variables. We find strong evidence that a reduction in volatility is common to the series examined. Further, the reduction in volatility implies that future expansions will be considerably longer than the historical record.

Document Type: Original Article

DOI: http://dx.doi.org/10.1111/1467-9957.00266

Affiliations: 1: University of California, Riverside, 2: Federal Reserve Bank of New York

Publication date: October 1, 2001

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