Cyclical fluctuations across industries of the United States: Evidence and implications

Abstract

Theories differ in their explanations of industrial business cycles. This paper focuses on the implications of the new classical imperfect information model in contrast to two leading new Keynesian alternatives: the sticky-wage and sticky-price models. Idiosyncratic disturbances have varying effects on the slope of the industrial supply curve in the context of the contending explanations. Investigating this relation across industries of the United States is consistent with the following scenario. Industries characterized by a higher demand variability and/or a lower trend inflation appear, on average, subject to more cyclical fluctuations in response to aggregate demand shifts. The implications of these findings are evaluated.