The Federal Reserve Board eagle logo links to home page

International Finance Discussion Papers
The International Finance Discussion Papers logo links to the International Finance Discussion Papers home page Permanent and Transitory Components of Business Cycles: Their Relative Importance and Dynamic Relationship
Chang-Jin Kim; Jeremy Piger; Richard Startz
2001-703  (May 2001)

Abstract:  This paper investigates the relationship between permanent and transitory components of U.S. recessions in an empirical model allowing for business cycle asymmetry. Using a common stochastic trend representation for real GNP and consumption, we divide real GNP into permanent and transitory components, the dynamics of which are different in booms vs. recessions. We find evidence of substantial asymmetries in postwar recessions, and that both the permanent and transitory component have contributed to these recessions. We also allow for the timing of switches from boom to recession for the permanent component to be correlated with switches from boom to recession in the transitory component. The parameter estimates suggest a specific pattern of recessions: switches in the permanent component lead switches in the transitory component both when entering and leaving recessions.

Full paper (152 KB PDF)

asymmetry, economic fluctuations, Markov-switching.

PDF files: Adobe Acrobat Reader   ZIP files: PKWARE

Home | IFDPs | List of 2001 IFDPs
To comment on this site, please fill out our feedback form.
Last update: July 19, 2001