Business Cycle Expansions Research Articles

Hysteresis and cyclical variability in real wages, output and unemployment: empirical evidence from nonlinear methods for the United States

Whether the equilibria towards which economic variables gravitate are stable or exhibit historic path dependence (i.e. hysteresis) is of central importance for the efficacy of stabilization policy. Given that such hysteresis is a natural consequence of nonlinearity in the conditional mean of the data generating process, we lest for the presence of hysteretic path dependence by examining the time series properties of monthly U.S. aggregate and disaggregate data over the post Bretton Woods period 1971-1993. Our results suggest that such nonlinearity is indeed present and capable of representation using bilinear and threshold autoregressive models, estimates implying strong asymmetry in the behaviour of our series with recessionary periods being inherently more‘'noisy’. Finally, we consider generalized threshold vector autoregressive models where threshold regimes are conditioned on the sign of the change in the growth rate of industrial production (i.e. the ‘business cycle’). These models reveal that cyclical behaviour of unemployment and the real wage is complex, being procyclical during business cycle expansions but countercyclical and independent, respectively, during contractions.

The Changing Effects of Nonfarm Business Expansions on Farm Costs

IN 1945 Professor Schultz described the effects of nonfarm business fluctuations on farm prices, production, and income.' His analysis is now widely accepted by the profession. In brief, he found that industrial production and prices received by farmers were very sensitive to business fluctuations, while agricultural production and the prices paid by farmers were quite insensitive. During business cycle expansions, these conditions brought about improvement in farm income; during contractions, farm income declined. While it is true that agriculture still faces the problem of nonfarm business fluctuations, in recent years changes have occurred in the underlying relationships. This note presents the results of a study of the effects of nonfarm business expansions on farm input expenditures. It highlights one set of changes which have occurred and sketches their implications. Method of Study The basic rationale underlying the study is as follows. Since 1940 agriculture has used more and more inputs with prices that are mainly determined by the nonfarm sector of the economy. During expansions in the nonfarm sector of the economy, prices of these inputs have risen. Because the use of these inputs has greatly enlarged relative to the period prior to 1940, the price rises have had a much greater effect on farm input expenditures than in the earlier period. Both current operating expenses and farm capital expenditures were divided into three categories. Inputs which were produced or demanded by the nonfarm sector, were classified as nonfarm inputs. Such inputs are hired labor, and the purchase, operation and repair of motor vehicles and farm machinery. Inputs which were produced and demanded by the farm sector were classified as farm inputs. Livestock and seed were so classified. All inputs produced and demanded by both the farm and nonfarm sectors were classified as mixed inputs. Feed, fertilizer, buildings, and their repair were classified as mixed inputs. Changes in expenditures during expansion years were separated into