General Business Cycle Research Articles

The Reaction of Household Consumption to Predictable Changes in Social Security Taxes

The key implication of rational expectations and the basic life-cycle/permanent-income hypothesis: that predictable changes in income have no effect on the growth rate of consumption expenditures, is examined. This implication is important for understanding the effectiveness and optimal timing of fiscal policy, the causes and propagation of business cycles, and the effects of income fluctuations on the growth rate of the economy. Using household-level consumption data from the Consumer Expenditure Survey, whether expenditures on nondurable goods increase contemporaneously with predictable changes in Social Security tax withholding is tested. It is found that households do change their consumption expenditures in response to the predictable fluctuations in income induced by the Social Security tax system.

Forecasting industry turning points: the US hotel industry cycle model

This study developed for the US hotel industry a business cycle that would cover hotel activity as broadly as possible and one that would represent the magnitude of growth of the industry. For the 28-year period (from 1966 to 1993), the hotel industry demonstrated three cycles (peak to peak or trough to trough). The hotel industry peaked in 1967, 1973, 1980, and 1989. The industry troughed in 1969, 1974, 1982, and 1991. The mean duration of the hotel industry cycle is 7.3 yr, calculated either by peak to peak or trough to trough. This means the next peak would be 1996 or 1997 if the past trends take the same track. According to the mean expansion figure (5.7 yr) the next peak would be also 1996 or 1997. The hotel industry declined sharply after it reached the peaks. The mean duration for the contraction is about two years (1.7 yr) and the mean duration for the expansion is about six years (5.7 yr). The hotel industry cycle was reformed with the hotel industry growth cycle based on year-over-year growth rate. The hotel industry experienced high growth (boom) every four or five years. The average expansion period is about three years and the average contraction period is about two years. The hotel industry led the general business cycle peaks by about 0.75 yr on average and also led at troughs in the general business cycle by roughly 0.5 yr. The results of this study provide useful guideposts for taking every possible advantage of the cycle study to the practitioners and researchers in the hotel industry.

The Changing Structure of the U.S. Green Industry

Floriculture and environmental horticulture products, increasingly referred to as the “Green Industry,” is the fastest growing segment in U.S. agriculture. The paper examines the structure and contributions of the green industry as well as the technological developments, marketing research, and issues facing the industry. The industry is large, complex, and comprised of many segments. From producers to retailers, the industry is oligoplistic and producers establish their own prices. Unlike many other agricultural commodities, nursery stock is highly sensitive to the general business cycle that affects overall demand for consumer goods and services. The income elasticity of demand for nursery products is much greater than for food and fiber products. The elasticities, however, vary from plant to plant and whether plants are flowering annuals or perennials. Increasingly, the industry is realizing the need to make a marketing oriented approach a priority. There are many trends and developments within and outside the industry that offer opportunities as well as challenges for the U.S. green industry.

Fickle Consumers, Durable Goods, and Business Cycles

This paper develops a three sector dynamic general equilibrium model with the specific aim of evaluating the role of consumer durables in the generation and propagation of business cycles. The model displays indeterminacy at commonly considered realistic parameter restrictions and basically constant returns to scale. If calibrated at modest increasing returns to scale, the sunspots driven model version produces a close match to moments of aggregate U.S. data.Journal of Economic LiteratureClassification Numbers: E00, E32.

The labour market over the business cycle: can theory fit the facts?

We examine the ability of six labour market models to account for the business cycle behaviour of UK labour markets when embedded in a stochastic growth model. We assess the models in terms of : (i) their ability to mimic general business cycle correlations and volatility (ii) their success at explaining the persistence of labour market fluctuations and (iii) whether they can explain why the growth and speed of adjustment of labour market variables changes between periods of expansions and contractions. The main success of the models is their ability broadly to account for business cycle correlations and comovements and the variations in employment/unemployment growth rates between expansions and contractions. However, there are three main failures: (i) the models tend to produce insufficiently volatile employment and unemployment fluctuations (ii) they tend to produce too strong a correlation between wages and employment and (iii) most of them generate only brief temporary deviations in unemployment in response to shocks rather than the protracted dynamics of the data.

Are Consumer Durables Important for Business Cycles?

This paper investigates whether consumer durables are important for the generation and propagation of business cycles. The author constructs a two-sector model that succeeds in generating business cycles that mimic empirical patterns of cross-sector volatility and comovement. She finds that half the relatively higher volatility associated with the durable-goods sector is due to higher volatility of shocks hitting this sector, with the other half due to endogenous responses, notably the investment accelerator. Nevertheless, this model does not have stronger internal propagation than the one-sector model. Further, incorporating durable consumer goods has little effect on the behavior of other macroeconomic variables. Copyright 1996 by MIT Press.

Telecom traffic statistics —MiTT matter: Improving economic forecasting and regulatory policy

This paper makes a case for compiling a new set of industry statistics based upon MiTT — minutes of telecommunications traffic. For most countries, telecommunication flows are a statistical ‘lack hole’. Annual reports are the rule; there is no common unit of account; and data on traffic flows is rarely disaggregated. To help remedy this situation it is proposed here that MiTT be adopted as a standard unit of account to log flows over circuits of common bandwidth. The regular compilation of MiTT statistics is viewed as having broad public and private benefits. They include the potential of MiTT to serve as a new economic indicator for tracking the general business cycle. A statistical analysis of year-on-year changes in public voice circuit MiTT from the UK, USA and Singapore is presented in support of this thesis.

SubseGtor fluctuations in construction

Subsector analysis of short-run construction starts reveals that the construction cycle is fundamentally linked to the general business cycle so that moderation of the volatility of the cycle requires a more concerted national effort. Subsector starts were found to be generated by the same underlying structure and highly susceptible to random shocks; little is thus to be gained from diversification of work by construction firms.

Business Cycles and Equilibrium.

Foreword. Introduction. Chapter 1: Banking and Interest Rates in a World Without Money: The Effects of Uncontrolled Banking. Chapter 2: Active and Passive Monetary Policy in a Neoclassical Model. Chapter 3: Rational Economic Behavior and the Balance of Payments. Chapter 4: Uniqueness of the Price Level in Monetary Growth Models with Rational Expectations. Chapter 5: Purchasing Power Parity in an Equilibrium Model. Chapter 6: Ups and Downs in Human Capital and Business. Chapter 7: How Passive Monetary Policy Might Work. Chapter 8: What a Non-Monetarist Thinks. Chapter 9: Global Monetarism in a World of National Currencies. Chapter 10: The ABCs of Business Cycles. Chapter 11: A Gold Standard with Double Feedback and Near Zero Reserves. Chapter 12: The Trouble with Econometric Models. Chapter 13: General Equilibrium and Business Cycles. Chapter 14: Noise. Index.

Industrial Borrowing by the New England Textile Mills, 1840–1860, A Comment

Lance E. Davis, writing in the March 1960 issue of The Journal of Economic History, found that comparatively low interest rates were paid by eight “Massachusetts-type” cotton textile mills on loans from 1840 to 1860. These firms were voracious borrowers throughout the period, and the textile industry as a whole was a major user of credit. Davis attributed the continued low interest rates primarily to well-enforced usury laws and to the influence of nonprofit lending agencies, with occasional references to effects of the New York money market (not important before 1853). Many other factors—for example, the Tariff of 1846, removing protection from important classes of cotton textiles, die general business cycle, technological changes, alternative investments in railroads and other industries, the relation of increased savings to increased investment demands—should all be explored for an adequate explanation. Of these factors, only the general business cycle is taken up by Davis in a brief reference. The purpose of this note is to suggest that interlocking directorates between financial and textile firms rather than usury laws were probably chiefly responsible for the low rates paid.

The Process of Capital Formation in Inventories and the Vertical Propagation of Business Cycles

The Process of Capital Formation in Inventories and the Vertical Propagation of Business Cycles