DP873 One Business Cycle and One Trend from (Many) Many Disaggregates

Author(s): Danny Quah
Publication Date: January 1994
Keyword(s): Business Cycle, Distribution Dynamics, Economic Fluctuation, Geographical Region, Growth, Large Cross-Section
JEL(s): C33, E32, E37
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=873

Typical analyses of trends and cycles take as given some (one) observable economic variable in whose time path a researcher wishes to find trend and cycle movements. But individual sectors and regions in aggregate economies move neither perfectly with nor independently of each other -- why is it useful to study their aggregate? Using a model for non-stationary, dynamically evolving distributions, this paper provides evidence that in the United States, regional movements that preserve their aggregate time path nevertheless have important, predictive comovements with aggregate GNP. Such predictive content cannot be understood in traditional macro models that seek the source for business cycles in aggregate productivity or monetary shocks.