Academic journal article NBER Reporter

Business Cycles

Academic journal article NBER Reporter

Business Cycles

Article excerpt

Business Cycles(1)

While many readers of the popular press are familiar with such terms as "recession" and "expansion," few are likely to know that these downs and ups in the economy have been the subject of research at the NBER for nearly 70 years. Indeed, Wesley C. Mitchell, one of the Bureau's founders and its director of research for the first 25 years, had published a treatise on Business Cycles in 1913. When the NBER's certificate of incorporation was signed and recorded in 1920, business cycles had already been designated as the Bureau's second project, to follow the development of a series of national income accounts.

Business cycles are merely recurrent sequences of ups and downs in economic activity. These ups and downs are important because they represent major fluctuations in employment, production, real income, and real sales.

Shortly after the Bureau's founding, the NBER staff began to compile comprehensive chronological records of changes in economic conditions in the United States, England, France, Germany, Austria, and twelve other countries. These "business annals," as they were called, resulted in a 1926 volume with that title by Willard L. Thorp,(3) who is still a director emeritus on the NBER Board. (1)Much of the historical information in this article comes from S. Fabricant, Toward a Firmer Basis of Economic Policy: The Founding of the National Bureau of Economic Research, NBER pamphlet, 1984. (2)Director of Public Information, NBER. (3)W.L. Thorp, Business Annals, NBER General Series No. 8, 1926.

Also in the early 1920s, the NBER began collecting and analyzing time-series data on various aspects of modern economies. Narrowing the focus to the United States, England, France, and Germany, the NBER staff was able to compare these economic indicators to the trends described in the annals. Through a painstaking collective effort by a group of distinguished economists including Moses Abramovitz, Arthur F. Burns, Milton Friedman, Simon Kuznets, and Geoffrey H. Moore, the NBER finally compiled monthly, quarterly, and annual reference chronologies of business cycles. For the United States and Britain, these tables went back on a monthly basis to 1854.

In 1927, Mitchell published a volume on business cycles that established a workable definition and outlined a research program that was followed for many years thereafter.(4) In 1946, Burns and Mitchell rephrased the definition as follows: "Business cycles are a type of fluctuation found in the aggregate economic activity of nations that organize their work mainly in business enterprises: a cycle consists of expansion occurring at about the same time in many economic activities, followed by similarly general recessions, contractions, and revivals that merge into the expansion phase of the next cycle; this sequence of changes is recurrent but not periodic; in duration business cycles vary from more than one year to ten or twelve years; they are not divisible into shorter cycles of similar character with amplitudes approximately their own."(5)

This definition has been used for more than 60 years and is still used today. It is particularly noteworthy that the definition places no fixed requirement on the duration of expansions and contractions, their amplitude, or their scope. Nor did Mitchell define "aggregate economic activity," because there is no single comprehensive measure available for a long historical period--on a monthly or quarterly basis--that is comparable throughout in its coverage and adequate throughout in its statistical foundation. …

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