Abstract
The business cycle is the cycle in the output gap and also in a stationary measure of trend output. Both the output gap and trend output are driven by joint trend-cycle shocks. The model is a univariate trend-cycle decomposition with hysteresis in trend output that enables the estimation of the output gap and trend output in 81 economies in quarterly frequency, since 1995Q1; and 184 economies in yearly frequency, in several cases since 1950, and in a few cases since 1820. Volatility and dispersion, as well as the frequency of large joint trend-cycle shocks, were low during the Gilded Age period; high during the interwar period, even more so in advanced (AD) economies compared to emerging market and developing economies (EMDE); and low in AD economies and high in EMDE economies in the post WWII period. In contrast with other existing estimates of trend output, those from the trend-cycle decomposition with hysteresis do not evolve smoothly, do not result in an artificial boom before recessions and are less sensitive to new data.
Reference31 articles.
1. Aguiar, M., Gopinath, G., 2007. Emerging market business cycles: the cycle is the trend. Journal of Political Economy 115 (1), 69-102.
2. Alichi, A., Avetisyan, H., Laxton, D., Mkhatrishvili, S., Nurbekyan, A., Torosyan, L., Wang, H., Hunt, B.L., 2019. Multivariate filter estimation of potential output for the united states: an extension with labor market hysteresis. IMF Working Paper 2019 (035).
3. Ball, L.M., Onken, J., 2021. Hysteresis in unemployment: evidence from oecd estimates of the natural rate. Technical report, National Bureau of Economic Research.
4. Blanchard, O.J., Quah, D., 1989. The dynamic effects of aggregate demand and supply disturbances. American Economic Review 79 (4), 655-673, URL https://ideas.repec.org/a/aea/aecrev/v79y1989i4p655-73.html
5. Bolt, J., Van Zanden, J.L., 2020. Maddison style estimates of the evolution of the world economy. a new 2020 update. Maddison-Project Database .