Business Cycle Anatomy

Abstract

We propose a new strategy for dissecting the macroeconomic time series, provide a template for the propagation mechanism that best describes the observed business cycles, and use its properties to appraise models of both the parsimonious and the medium-scale variety. Our findings support the existence of a main business-cycle driver but rule out the following candidates for this role: technology or other shocks that map to TFP movements; news about future productivity; and inflationary demand shocks of the textbook type. Prominent members of the DSGE literature also lack the propagation mechanism seen in our anatomy of the data. Models that aim at accommodating demanddriven cycles under flexible prices appear promising.

Replaced by

George-Marios Angeletos, Fabrice Collard, and Harris Dellas, “Business Cycle Anatomy”, American Economic Review, vol. 10, 2020, pp. 3030–70.

Reference

George-Marios Angeletos, Fabrice Collard, and Harris Dellas, “Business Cycle Anatomy”, TSE Working Paper, n. 20-1065, January 2020.