Chapter 3

Report
Chapter 3
Business
Cycle
Measurement
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Chapter 3 Topics
• Regularities in GDP fluctuations.
• Comovement
• Behavior of Key Macroeconomic Variables
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Regularities in GDP
Fluctuations
• Business Cycles are fluctuations about trend in
real GDP.
• The turning points in the deviations of real GDP
from trend are peaks and troughs.
• Persistent positive deviations from trend are
booms and persistent negative deviations from
trend are recessions.
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Figure 3.1 Idealized Business
Cycles
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Deviations From Trend in
Real GDP are Irregular
• The fluctuations in GDP about trend are quite
choppy.
• There is no regularity in the amplitude of
fluctuations in real GDP about trend.
• There is no regularity in the frequency of
fluctuations in real GDP about trend.
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Figure 3.2 Percentage Deviations from
Trend in Real GDP from 1947–2006
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Figure 3.3 Time Series Plots
of x and y
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Figure 3.4 Correlations
Between Variables y and x
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Correlation With Real GDP
• If the deviations from trend in a macroeconomic
variable are positively (negatively) correlated
with the deviations from trend in real GDP, then
that variable is procyclical (countercyclical).
• If a macroeconomic variable is neither
procyclical nor countercyclical, it is acyclical.
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Figure 3.5 Imports and GDP
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Figure 3.6 Scatter Plot of
Imports and GDP
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Figure 3.7 Leading and
Lagging Variables
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Figure 3.8 Percentage Deviations from Trend in
Real GDP (colored line) and the Index of Leading
Economic Indicators (black line) for 1959–2006
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Behavior of Key
Macroeconomic Variables
• Components of GDP: consumption and
investment.
• Nominal variables: price level and money
supply.
• Labor market variables: employment, real wage,
average labor productivity.
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Figure 3.9 Percentage Deviations from
Trend in Real Consumption (black line) and
Real GDP (colored line) 1947–2006
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Figure 3.10 Percentage Deviations from
Trend in Real Investment (black line) and
Real GDP (colored line)
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Figure 3.11 Scatter Plot for the Percentage
Deviations from Trend in the Price Level (the
Implicit GDP Price Deflator) and Real GDP
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Figure 3.12 Price Level and
GDP
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Figure 3.13 Percentage Deviations from Trend
in the Money Supply (black line) and Real GDP
(colored line) for the Period 1959–2006.
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Figure 3.14 Percentage Deviations from
Trend in Employment (black line) and
Real GDP (colored line)
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Figure 3.15 Percentage Deviations from Trend
in Average Labor Productivity (black line) and
Real GDP (colored line) for 1948–2006
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Figure 3.16 Seasonally Adjusted (black)
and Unadjusted (colored) Money Supply
for the Years 2001–2006
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Table 3.1 Correlation Coefficients and
Variability of Percentage Deviations from
Trend
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Table 3.2 Summary of
Business Cycle Facts
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Figure 3.17 Percentage Deviations from
Trend in Real GDP and Government
Expenditures
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Figure 3.18 Scatter Plot of Government
Expenditures Against Real GDP
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Figure 3.19 Percentage Deviations
from Trend in Real GDP and Exports
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Figure 3.20 Scatter Plot of
Exports vs. GDP
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Figure 3.21 X and Z
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