Many of the worst prewar depressions, including the recessions of 1908, 1921, and the of the 1930s, were to a large extent the result of monetary contraction and high real interest rates.
In this earlier era, however, most monetary swings were engendered not by deliberate monetary policy but by financial panics, policy mistakes, and international monetary developments.
With respect to the methods that date fluctuations around some trend, the deviation cycle concept, we favour the band-pass filter to generate cyclical components.
On the expansionary side, the inflationary booms of the mid-1960s and the late 1970s were both at least partly due to monetary ease and low interest rates.
The role of money in causing business cycles is even stronger if one considers the era before World War II.
A number of studies, especially Harding and Pagan, have demonstrated that Hamilton’s nonlinear MS model do not replicate business cycle features better than simpler linear models. Keywords: Markov-switching model; Bry and Boschan algorithm; business cycle dating (search for similar items in Econ Papers) JEL-codes: E32 E37 (search for similar items in Econ Papers) New Economics Papers: this item is included in nep-mac and nep-ore Date: 2015-04 References: View references in Econ Papers View complete reference list from Cit Ec Citations Track citations by RSS feed Downloads: (external link) text (revised version) (application/pdf) Related works: This item may be available elsewhere in Econ Papers: Search for items with the same title.
Jan Bonenkamp, Jan Jacobs () and Gerard Kuper () No 01C25, Research Report from University of Groningen, Research Institute SOM (Systems, Organisations and Management) Abstract: This paper compares different business cycle dating methods both on theoretical and practical grounds.
A firm faced with high interest rates may decide to postpone building a new factory because the cost of borrowing is so high.
Conversely, a consumer may be lured into buying a new home if interest rates are low and mortgage payments are therefore more affordable.
One of Burns and Mitchell’s key insights was that many economic indicators move together.
During an expansion, not only does output rise, but also employment rises and unemployment falls.
Thus, by raising or lowering interest rates, the Federal Reserve is able to generate recessions or booms.
Source: The data are from the Bureau of Labor Statistics.
New construction also typically increases, and in the economy.