Real Business Cycles: A Reader

By James E. Hartley; Kevin D. Hoover et al. | Go to book overview

CHAPTER 31

ROBERT J. HODRICK

EDWARD C. PRESCOTT

Postwar U. S. Business Cycles: An Empirical Investigation

We propose a procedure for representing a time series as the sum of a smoothly varying trend component and a cyclical component. We document the nature of the comovements of the cyclical components of a variety of macroeconomic time series. We find that these comovements are very different than the corresponding comovements of the slowly varying trend components.

THE PURPOSE OF THIS ARTICLE is to document some features of aggregate economic fluctuations sometimes referred to as business cycles. The investigation uses quarterly data from the postwar U. S. economy. The fluctuations studied are those that are too rapid to be accounted for by slowly changing demographic and technological factors and changes in the stocks of capital that produce secular growth in output per capita.

As Lucas (1981) has emphasized, aggregate economic variables in capitalist economies experience repeated fluctuations about their long-term growth paths. Prior to Keynes’ General Theory, the study of these rapid fluctuations, combined with the attempt to reconcile the observations with an equilibrium theory, was regarded as the main outstanding challenge of economic research. Although the Keynesian Rev

Support of the National Science Foundation is acknowledged. We also acknowledge helpful comments by the participants at the 1979 Summer Warwick Workshop on Expectation and the money workshops at the Universities of Chicago and Virginia and at Carnegie-Mellon University. In particular, we thank Robert Avery, V. V. Chari, Lars Peter Hansen, Charles R. Nelson, Thomas J. Sargent, Kenneth J. Singleton, and John H. Wood for comments. We also thank the Wharton Economic Forecasting Associates for providing the data.

This paper is substantially the same as our 1981 working paper. The only major change to the paper is the addition of an Appendix of Tables that mirror our originals and contain data ending in 1993. Since we did not update the citations, we apologize to the many authors who have used the Hodrick-Prescott filter and studied its properties in the intervening eighteen years since its original development.

ROBERT J. HODRICK is Nomura Professor of International Finance at the Graduate School of Business, Columbia University. EDWARD C. PRESCOTT is Regents’ Professor at the University of Minnesota and Advisor to the Federal Reserve Bank of Minneapolis. Both are research associates of the National Bureau of Economic Research.

Journal of Money, Credit, and Banking, Vol. 29, No. 1 (February 1997) Copyright 1997 by The Ohio State University Press

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Real Business Cycles: A Reader
Table of contents

Table of contents

  • Title Page iii
  • Contents vii
  • Acknowledgements xi
  • Part I - Introduction 1
  • Chapter 1 - The Limits of Business Cycle Research 3
  • Notes 34
  • Chapter 2 - A User's Guide to Solving Real Business Cycle Models 43
  • Part II - The Foundations of Real Business Cycle Modeling 55
  • Chapter 3 57
  • Chapter 4 83
  • References 96
  • Chapter 5 97
  • Chapter 6 102
  • Chapter 7 108
  • Part III - Some Extensions 147
  • Chapter 8 149
  • Chapter 9 168
  • References 178
  • Chapter 10 - Current Real-Business-Cycle Theories and Aggregate Labor-Market Fluctuations 179
  • Chapter 11 - The Inflation Tax in a Real Business Cycle Model 200
  • Part IV - The Methodology of Equilibrium Business Cycle Models 217
  • Chapter 12 219
  • Chapter 13 237
  • Chapter 14 254
  • Chapter 15 272
  • Part V - The Critique of Calibration Methods 293
  • Chapter 16 295
  • Chapter 17 - Measures of Fit for Calibrated Models 302
  • Chapter 18 333
  • Chapter 19 355
  • Part VI - Testing the Real Business Cycle Model 381
  • Chapter 20 - Business Cycles: Real Facts and a Monetary Myth 383
  • References 398
  • Chapter 21 399
  • Chapter 22 - Evaluating a Real Business Cycle Model 431
  • Chapter 23 462
  • Chapter 24 496
  • Chapter 25 513
  • Chapter 26 - Did Technology Shocks Cause the 1990-1991 Recession? 533
  • Part VII - The Solow Residual 541
  • Chapter 27 - Technical Change and the Aggregate Production Function 543
  • Chapter 28 552
  • Chapter 29 564
  • Chapter 30 - Output Dynamics in Real-Business-Cycle Models 571
  • Part VIII - Filtering and Detrending 591
  • Chapter 31 - Postwar U. S. Business Cycles: an Empirical Investigation 593
  • Chapter 32 609
  • Chapter 33 626
  • Index 652
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