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The business cycle is alive and well

  • James H. StockEmail author
Original Article
  • 7 Downloads

Abstract

Have the dynamic relations among macro variables changed markedly since the financial crisis? A dynamic factor model provides consistent evidence of stability across 248 variables The Great Moderation appears to be ongoing; you cannot reject the hypothesis that the standard deviation of four-quarter GDP growth is the same over 1984–2007 and over 2008–2018. Even so, the apparent slower GDP growth trend implies a substantial probability that a recession may start in the next 2 years, even not adding the risk that some large unprecedented negative event may occur. Because of low interest rates and already-large deficits, the ability of Congress and the Fed to mitigate the effects of a recession are historically constrained.

Keywords

Business cycle Dynamic factor models Great moderation Monetary policy 

Notes

Copyright information

© National Association for Business Economics 2019

Authors and Affiliations

  1. 1.Harvard UniversityCambridgeUSA

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