Marcelle, Chauvet and Jeremy, Piger (2010): Employment and the business cycle.
Download (147kB) | Preview
The Great Recession of 2007-2009 has not only caused a large wealth loss, it was also followed by a sluggish subsequent recovery. Two years after officially emerging from the recession, the economy was still growing at a low pace and payroll employment was far from reaching its previous peak. However, assessment of the employment situation was markedly different across different series. The two most important employment series, payroll employment (ENAP) and civilian employment (TCE), have recently been displaying divergent patterns. This has been a source of great uncertainty regarding labor market conditions. This paper investigates the differences in the cyclical dynamics of these series and the implications for monitoring business cycle on a current basis. Univariate and multivariate Markov switching models are applied to revised and real time unrevised data. We find that the main differences across these series occur around recessions. The employment measures have diverged considerably around the last three recessions in 1990-1991, in 2001, and in 2007-2009, but especially during their subsequent recoveries. In particular, while the probabilities of recession for models that include ENAP depict jobless recoveries, the probabilities of recessions from models with TCE fall right around the trough of the last three recessions, as determined by the NBER. This significantly impacts the identification of turning points in multivariate models in sample and in recursive real time analysis, with models that use TCE being more accurate compared to the NBER dating, and delivering faster call of troughs in real time. Models that include ENAP series, on the other hand, yield delays in signaling business cycle troughs, especially the most recent ones.
|Item Type:||MPRA Paper|
|Original Title:||Employment and the business cycle|
|Keywords:||Employment, Business Cycle, Turning Point, Real Time, Markov-Switching, Dynamic Factor Model, Jobless Recovery|
|Subjects:||E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles
C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes
|Depositing User:||Marcelle Chauvet|
|Date Deposited:||14. Oct 2011 03:45|
|Last Modified:||14. Feb 2013 23:05|
Bry, G. and Boschan, C., 1971, Cyclical Analysis of Time Series: Selected Procedures and Computer Programs, New York: National Bureau of Economic Research.
Burns, A.F. and W.A. Mitchell, 1946, Measuring Business Cycles, New York: National Bureau of Economic Research.
Chauvet, M., 1998, An Econometric Characterization of Business Cycle Dynamics with Factor Structure and Regime Switching, International Economic Review 39, 969-996.
Chauvet, M. and J. Piger, 2003, Identifying Business Cycle Turning Points in Real Time, Federal Reserve Bank of St. Louis Review 85, 47-61.
Chauvet, M. and J. Hamilton, 2005, “Dating Business Cycle Turning Points,” with J.D. Hamilton in “Nonlinear Time Series Analysis of Business Cycles;” ed. Van Dijk, Milas, and Rothman, Elsevier’s Contributions to Economic Analysis Series, 1-54.
Chauvet, M. and J. Piger, 2008, A Comparison of the Real-Time Performance of Business Cycle Dating Methods, Journal of Business and Economic Statistics 26, 42-49.
Croushore, D. and T. Stark, 2001, A Real-Time Data Set for Macroeconomists, Journal of Econometrics 105, 111-130.
Gordon, R.J., 2010, Okun’s Law, Productivity Innovations, and Conundrums in Business Cycle Dating, mimeo.
Haltom, N.L., V.D. Mitchell and E. Tallman, 2005, “Payroll Employment Data: Measuring the Effects of Annual Benchmark Revisions,” Federal Reserve Bank of Atlanta Economic Review, Second Quarter, 1-23.
Hamilton, J.D., 1989, A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle, Econometrica 57, 357-384.
Hamilton, J.D. Waggoner, D.F. and T. Zha, 2007, Normalization in Econometrics, Econometric Reviews 26, 221-252.
Juhn, C. and S. Potter (1999), Explaining the recent divergence in payroll and household employment growth, Current Issues in Economics and Finance, Federal Reserve Bank of New York, December, 1-6.
Kane, T. (2004), Diverging employment data: A critical view of the payroll survey, The Heritage Foundation Center for Data Analysis, CDA04-03, available at http://www.heritage.org/Research/Labor/CDA04-03.cfm
Kim, C.-J., 1994, Dynamic linear models with Markov-switching, Journal of Econometrics 60, 1-22.
Kitchen, John, 2003, “A Note on the Observed Downward Bias in Real-Time Estimates of Payroll Jobs Growth in Early Expansions,” mimeo.
Stock, J.H. and M.W. Watson, 1989, “New Indexes of Coincident and Leading Economic Indicators,” NBER Macroeconomics Annual, 4, 351-393.
Stock, J.H. and M.W. Watson, 1991, “A Probability Model of the Coincident Economic Indicators.” in Leading Economic Indicators: New Approaches and Forecasting Records, ed. K. Lahiri and G.H. Moore, Cambridge: Cambridge University Press, 63-89.
Stock, J.H. and M.W. Watson, 2010, “Indicators of Dating Business Cycles: Cross-History, Selection, Comparisons, Possible Changes.” 2010 Annual Meeting of the American Economic Association.
Summers, P.M. and L. Warren, 2011, “Labor Market Cycles and Business Cycles,” mimeo, Texas Tech University.
Watson, M.W, 1994, “Business Cycle Durations and Postwar Stabilization of the U.S. Economy,” American Economic Review, 84, 24-46.