Professor K.D. Hoover, Econ 210D Topic 2 Spring 2015 1 Econ 210D Intermediate Macroeconomics Spring...

Professor K.D. Hoover, Econ 210D Topic 2 Spring 2015 1

Econ 210D Intermediate Macroeconomics

Spring 2015Professor Kevin D. Hoover

Topic 2Trends and Cycles

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Computing a Centered Moving-Average Trend

Center

billion

YYYYYY trend

8.589,11$5

9.340,111.522,114.712,114.727,110.646,11

51:094:083:082:081:08

3:08

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Professor K.D. Hoover, Econ 210D Topic 2 Spring 2015 7

Original and Detrended Series

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Professor K.D. Hoover, Econ 210D Topic 2 Spring 2015 9

Definition of the Business Cycle BUSINESS CYCLE – the alternation in the

state of the economy of a roughly consistent periodicity and with rough coherence between different measures of the economy

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Anatomy of the Business Cycle Peak = the point of locally greatest economic

activity Trough = the point of locally lowest economic

activity Period of rising from trough to peak = boom,

expansion, recovery Period of falling from peak to trough = slump,

recession, contraction Complete Cycle = period from peak to peak

or trough to trough

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Professor K.D. Hoover, Econ 210D Topic 2 Spring 2015 12

Miscellaneous Business-cycle Terminology Depression = a large recession Growth Recession = a period of growth

that is positive, yet so slow, so that the unemployment rate rises

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Dating the Business Cycle

Two-quarter Rule: recession is two consecutive quarters of negative growth in real GDP

NBER Definition: a recession = “a recurring period of decline in total

output, income, employment, and trade, usually lasting from six months to a year, and marked by widespread contractions in many sectors of the economy.”

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Business-cycle Indicators - 1

coincident = reaches peaks and troughs at the same time as the business cycle as a whole.

leading = reaches its peak ahead of the business-cycle peak; and its trough ahead of the business-cycle trough;

lagging = reaches its peak behind the business-cycle peak; and its trough behind the business-cycle trough.

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Business-cycle indicators – 2

mixed indicators = different incidence relative to business-cycle peaks and troughs.

acyclical indicators = no particular stable relationship to business cycle.

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Components of the Indicator Indices

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END of Topic 2

Next Topic: 3. Long-term Economic Growth