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How Long are Business Cycles? Reconsidering Fluctuations and Growth

Author

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  • Torben Mark Pedersen

    (Institute of Economics, University of Copenhagen)

Abstract
I reconsider the empirical relationship between business cycles and economic growth and pose the question: How long are business cycles when we try to distinguish between business cycles and economic growth? There is a common held view - a myth - that the cyclical component has a period up to eight years but the empirical evidence underlying that myth is the tradition of empirical business cycle research of Burns and Mitchell (1946) and NBER. That is not a good measure of the duration of the cyclical component in macroeconomic time series since Burns and Mitchell do not distinguish between business cycles and economic growth and they measure economic growth as a part of the expansion phase of a business cycle and consequently overstate the duration of the cyclical component. The Burns-Mitchell concept of business cycles differs from the modern view where business cycles are defined as movements about trend in GDP. I measure the duration of business cycles using a computer algorithm for determining turning points in classical business cycles, recovery cycles, and growth cycles for 11 OECD\ countries for the postwar period, and I conclude that business cycles are for most countries shorter than six years and that this should be the basis for a distinction between business cycles and economic growth. I derive the implications for, first, optimal business cycle filtering of macroeconomic time series and, secondly, I compute business cycle stylized facts for the U.S. economy and for a standard RBC model

Suggested Citation

  • Torben Mark Pedersen, 1998. "How Long are Business Cycles? Reconsidering Fluctuations and Growth," Discussion Papers 98-24, University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:kuiedp:9824
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    Citations

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    Cited by:

    1. Pacheco Jiménez, J.F., 2001. "Business cycles in small open economies: the case of Costa Rica," ISS Working Papers - General Series 19075, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    2. Tang, Sam Hak Kan & Groenewold, Nicolaas & Leung, Charles Ka Yui, 2008. "The link between institutions, technical change and macroeconomic volatility," Journal of Macroeconomics, Elsevier, vol. 30(4), pages 1520-1549, December.
    3. Berry A. Harahap & Pakasa Bary & Anggita Cinditya M. Kusuma, 2020. "The Determinants of Indonesia’s Business Cycle," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 9(special i), pages 215-235.
    4. knani, ramzi & fredj, ali, 2010. "Mondialisation et fluctuations des cycles économiques [globalisation and business cycle fluctuation]," MPRA Paper 22755, University Library of Munich, Germany.
    5. Jorg Dopke, 2004. "How Robust is the Empirical Link between Business-Cycle Volatility and Long-Run Growth in OECD Countries?," International Review of Applied Economics, Taylor & Francis Journals, vol. 18(1), pages 1-23.
    6. Awoutcha Tchieuzing, Romuald Fernand & Fotsing Waffo, Florent Ulrich, 2023. "intégration économique et convergence des cycles : une analyse entre le Cameroun et le Nigéria [Economic Integration and cycle convergence: an analysis between Cameroon and Nigeria]," MPRA Paper 116791, University Library of Munich, Germany.
    7. Louise Holm, 2016. "The Swedish business cycle, 1969-2013," OECD Journal: Journal of Business Cycle Measurement and Analysis, OECD Publishing, Centre for International Research on Economic Tendency Surveys, vol. 2015(2), pages 1-22.
    8. Rand, John & Tarp, Finn, 2002. "Business Cycles in Developing Countries: Are They Different?," World Development, Elsevier, vol. 30(12), pages 2071-2088, December.
    9. Chebbi, Ali, 2019. "How to enlarge the fiscal space and gain efficiency when adopting automatic fuel pricing mechanisms? The Tunisian case," The Quarterly Review of Economics and Finance, Elsevier, vol. 73(C), pages 34-43.
    10. Sandra Martina Leitner, 2007. "The Austrian Business Cycle - A Characterization," Economics working papers 2007-17, Department of Economics, Johannes Kepler University Linz, Austria.
    11. Peter F. Christoffersen, "undated". "Dating the Turning Points of Nordic Business Cycles," EPRU Working Paper Series 00-13, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.

    More about this item

    Keywords

    business cycles; real business cycles; economic growth; growth cycles; trend; Hodrick-Prescott filter; detrending; optimal filtering; spectral analysis;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C19 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Other

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