Aggregate and Regional Disaggregate Fluctuations

Abstract

This paper models fluctuations in regional disaggregates as a nonstationary, dynamically evolving distribution. Doing so enables study of the dynamics of aggregate fluctuations jointly with those of the rich cross-section of regional disaggregates. For the US, the leading state — regardless of which it happens to be — contains strong predictive power for aggregate fluctuations. This effect is difficult to understand if only aggregate disturbances affect aggregate business cycles through aggregate propagation mechanisms. Instead, a better picture might be one of a “wave” of regional dynamics, rippling across the national economy.

I thank IIES in Stockholm for its hospitality. I am grateful also to seminar participants at IIES, the LSE Macro Breakfast Group, and the University of Edinburgh, as well as Fischer Black, David Canning, Fabio Canova, and Costas Meghir for helpful suggestions. I owe special thanks to an anonymous referee who carefully read and helpfully criticized an earlier version of the paper. All calculations were performed using the author’s econometrics shell t _SrF.