National Business Cycles Research Articles

The determination and international transmission of stock market volatility

This paper extends the literature on low-frequency analysis of the causes and transmission of stock market volatility. It uses end-monthly data on stock market returns, interest rates, exchange rates, inflation, and industrial production for five countries (Britain, France, Germany, Japan, and the US) from July 1973 to December 1994. Efficient portfolios of world, European, and Japanese/US equity are first constructed, the existence of multivariate cointegrating relationships between them is demonstrated, and the transmission of conditional volatility between them is described. The transmission of conditional volatility from world equity markets and national business cycle variables to national stock markets is then modeled. Among the main findings are: first, world equity market volatility is caused mostly by volatility in Japanese/US markets and transmitted to European markets, and second, changes in the volatility of inflation are associated with changes of the opposite sign in stock market volatility in all markets where a significant effect is found to exist. To the extent that the volatility of inflation is positively related to its level, this implies that low inflation tends to be associated with high stock market volatility.

One fits all in the EMU? One monetary policy for eleven countries

Euro-skeptics continue to argue that the discrepancies between national business cycles are too wide, and that a common European monetary policy cannot work in the long run. The laboriously accomplished monetary stability will therefore not be able to last, high rates of inflation and a “soft” euro will, in the long run, be the inevitable consequences. The empirical evidence given in the following article supports a different view: not only has there been a strong correlation of business cycles in Euroland over the past decade, but there are also a multitude of forces that are working towards further convergence.

Border region commercial electricity demand

Border region electric utilities face unique circumstances in attempting to assess overall business and load demand conditions. These result from the many business cycle conditions facing these entities as a consequence of operating near international political boundaries. Can international economic fluctuations be systematically incorporated into electricity demand models? Along the U.S.-Mexico border, this problem is further complicated by economic interactions between an advanced economy and a developing country where data constraints exist at the regional level of disaggregation. Transfer function autoregressive moving average analysis is utilized to examine whether commercial electricity sales in El Paso, Texas respond to the national and metropolitan business cycles affecting economic performance in Ciudad Juarez, Chihuahua. Together, these cities form one of the largest international metropolitan areas in the world. This provides a logical starting point when considering the questions raised in this paper.

Earnings Management and Antitrust Investigations: Political Costs Over Business Cycles

This paper examines evidence of earnings management pertaining to regulatory‐imposed wealth transfers (i.e., political costs) over business cycles. The sample consists of firms subject to merger‐related antitrust investigation under Section 7 of the Clayton Act. Industrial organization literature, together with the political cost hypothesis, suggests that these firms’ earnings management incentives may vary over national business cycles. Our results indicate that investigated firms do indeed choose income‐decreasing discretionary accruals during expansions but not during recessions, in order to reduce the political costs associated with Clayton Act cases.

EMU: Countries or regions? Lessons from the EMS experience

The future adoption of a single currency among some of the members of the European Union has raised many concerns about the ability of EMU to deal with shocks that are specific to regions or countries. The assumption behind these concerns is that national business cycles in Europe are fairly pronounced and that exchange rates are good stabilizing tools. This paper characterizes regional and national fluctuations within the European Union and it studies how the process of integration and the creation of the EMS has affected these patterns. Our results indicate that national borders have seen their economic significance reduced over time as the process of integration has increased cross-border correlations and reduced within-border comovements.

International Business Cycles and Financial Integration

Recently developed methods in the analysis and measurement of latent factor models for time series are utilised to study international business cycles and their relationship to international stockmarket price behaviour. An advantage of these methods is that the duality properties between time domain and frequency domain approaches for investigating the properties of time series can be exploited to identify and model business cycles. The empirical results show that the six countries studied, which include the United States, Australia, Canada, United Kingdom, Germany and Japan, exhibit coherent national business cycles, although these cycles are not all alike. It is also found that international coherence in economic activity has increased in the flexible exchange rate period, although it is not as strong as it is for the national business cycles. The coherence between stockmarket prices and business cycles is not strong, both nationally and internationally, but international stockmarkets appear to show greater mutual coherence than do the corresponding economies.

Macroeconomic influences on migration.

"The changing composition and magnitude of internal migration flows are of critical importance in determining the potential economic growth of a region. Yet, there can be little doubt that the business cycle has a significant influence on migration flows and propensities. This paper explores the effects of macroeconomic events on migration [within Canada] through an examination of the extent of the influence of the national and regional business cycle on the in-, out- and net-migration rates." (SUMMARY IN FRE AND GER)

National Business Cycles and Community Competition for Jobs

National Business Cycles and Community Competition for Jobs

National Business Cycles and Community Competition for Jobs

National Business Cycles and Community Competition for Jobs

The Effects of War and Alcohol Consumption Patterns on Suicide: United States, 1910-1933

The study examines longitudinal suicide data for the United States between 1910 and 1933. Marshall found that national wars decrease suicide not because they produce greater political integration in society, but because they decrease the national unemployment rate, thereby producing greater economic integration. This work argues that national wars also decrease suicide because they diminish alcohol availability in society, which reduces suicide triggered by alcohol consumption. In order to test the hypothesis the paper examines aggregate data for the United States in the World War I and prohibition era. Since the death registration area is incomplete in the previous time period, a control variable is introduced into the model to minimize measurement error. A pooled cross-sectional analysis of the data for 20 individual states indicates no lag effect for the alcohol consumption variable. A longitudinal analysis of the total national data between 1910 and 1933 shows that the levels of alcohol consumption and changes in the national business cycle are significantly related to suicide, while participation in World War I did not significantly influence national suicide.

Local business cycle severity and induced labour mobility: the case of the construction workforce

The purpose of this study is to examine inter-state labour mobility within the construction industry, a sector of the local/national economy whose output (employment) is highly cyclically sensitive. Econometric estimates of the construction work-force migration decision indicate that such workers are responsive to economic conditions throughout local labour markets when considering geographic mobility. In this regard, workers respond to both static and dynamic measures of local well-being, and choose to move in the face of high local unemployement, slow growth, and high local cycle severity. In the latter respect, migration from metropolitan labour markets is significantly augmented (particularly among theunemployed) by the severity of local job loss attributable to national business cycle contractions, and stemmed somewhat by the rapidity of local job creation attributable to national expansions. The predominance of cycle-induced mobility within the construction work-force (vis-à-vis static local economic conditions) has important implications to both regional and national planners concerned with stabilization aspects of public facility siting (or closure). Thus, such worker responsiveness to local cycle severity should receive significant attention during impact assessment that precedes the construction (or closure) of large facilities such as military bases, public works and nuclear power plants.

The response of city economies to national business cycles

Since 1973, the U.S. economy has experienced three business cycles, with the 1973 and 1981 recessions being the most severe since the depression. These cycles have been unevenly distributed across the regions of the country, with East North Central states experiencing the greatest swings in employment and income. While a number of researchers have documented and examined the reasons for regional variations in cyclical employment and income [4–6], little is known about the responsiveness of metropolitan economies to the national business cycle. Are central cities more sensitive to the national cycle than suburban economies? If so, what factors, aside from differences in the composition of their local economies, explain the variations? The purpose of this paper is to address these two questions. A better understanding of metropolitan responses to the national business cycles can guide both national countercyclical investment strategies and local taxing and spending policy.

The effects of unemployment and inflation on the income distribution: A regional view

The behavior of the U.S. income distribution over the business cycle has been the subject of several previous studies. However, a facet of these inquiries which has not been viewed is the geographical effects within the U.S. The diverse economic characteristics of the country have contributed to uneven inflationary and unemployment experiences among the respective regions during the national business cycles. The purpose of this study has been to model the regional income inequality responses to the distinct macroeconomic records for the years 1968–1976.

State tax revenues-new methods of forecasting

This paper presents an econometric schema for tax revenue forecasting for regions which are apparently insensitive to national business cycle phenomena. ARIMA methods and simulation procedures for forecasting exogenous income components are linked to standard regression tax forecasting equations for individual income, sales, and use taxes. The procedure is exemplified by the case for Iowa. Forecast accuracy suggests the worth of this approach.