Measuring Business Cycles: A Modern Perspective

Abstract: In the first half of this century, special attention was given to two features of the business cycle: the comovement of many individual economic series and the different behavior of the economy during expansions and contractions. Recent theoretical and empirical research has revived interest in each attribute separately, and we survey this work. Notable empirical contributions are dynamic factor models that have a single common macroeconomic factor and nonlinear regime-switching models of a macroeconomic aggregate. We conduct an empirical synthesis that incorporates both of these features. It is desirable to know the facts before attempting to explain them; hence, the attractiveness of organizing business-cycle regularities within a model-free framework. During the first half of this century, much research was devoted to obtaining just such an empirical characterization of the business cycle. The most prominent example of this work