Thursday, August 5, 2010

Business Cycle Measurement

When we teach macro, we spend time on business cycles. One of the issues that comes up is the definition of the various components, and who gets to "make the call" on the turning points. Hopefully you're successful in dismissing the "two consecutive quarters of negative GDP growth" rule of thumb.

But the Federal Reserve Bank of St. Louis has just published an informative article on business cycle measurement in its Economic Synopsis publication. It examines a couple of alternative measures that are interesting. Truthfully, both of the measures discussed seem to indicate that things turned around in late 2008. And this topic may only be of esoteric interest. Nevertheless, it can help students understand that calling the turn is not as simples as "two consecutive quarters...".

No comments: