Cycles and their important shocks: completing the investigation

Abstract

Abstract The paper looks at the question of measuring the importance of shocks to cycles. We consider two types of cycles - oscillations and those summarized by the NBER that require a study of growth in activity to establish turning points in the level of activity. The latter demarcate expansions and contractions. We establish a connection between these two concepts of cycles that shows shocks may have very different effects on each. As an application we look at a question that has often been asked over how important technology shocks are to cycles in activity? Some recent research concludes that total factor productivity (TFP) shocks are not important for oscillations and therefore models should be designed to reflect that. Using the same data we show that TFP shocks are very important to both types of cycles.