A key question that has arisen during recent debates is whether government spending multipliers are larger during times when resources are idle. This paper seeks to shed light on this question by analyzing new quarterly historical data covering multiple large wars and depressions in the United States and Canada. Using Jorda's (2005) method for estimating impulse responses, we find no evidence that multipliers are greater during periods of high unemployment in the United States. In every case, they are below unity. We do find evidence of higher multipliers during periods of slack in Canada, with some multipliers above unity.

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The U.S. aggregate business cycle is often characterized as a series of distinct recession and expansion phases. We apply a regime-switching model to state-level coincident indices to characterize state business cycles in this way. We find that states differ a great deal in the levels of growth that they experience in the two phases: Recession growth rates are related to industry mix, whereas expansion growth rates are related to education and age composition. Further, states differ significantly in the timing of switches between regimes, indicating large differences in the extent to which state business cycle phases are in concord with those of the aggregate economy. © 2005 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Abstract. In this paper, we propose a new family of multivariate loss functions to test the rationality of vector forecasts without assuming independence across variables. When only one variable is of interest, the loss function reduces to the ‡exible asymmetric family proposed by Elliott, Komunjer and Timmerman (2005, 2006). Following their methodology, we derive a GMM test for multivariate forecast rationality that allows the forecaster's loss to be nonseparable across variables, and takes into account forecast estimation uncertainty.We use our test to study the joint rationality of macroeconomic forecasts in the growth rate of nominal output, CPI in ‡ation rate, and short-term interest rate. [JEL: C32, C53] * y