Business cycle dynamics across the US states

Magrini, Stefano; Gerolimetto, Margherita; Duran, Hasan Engin

doi:10.1515/bejm-2012-0018

Cited by 10 publications

(12 citation statements)

References 37 publications

(50 reference statements)

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“…In the US context, we might be able to use the national economic outlook (which is known to be less biased) and break it down to the state level. This would, however, require the use of specific state level economic indicators as well as some understanding of the state level dynamics of US business cycles (see, for instance, [55]). On this basis, it might be possible to construct a panel data set with US state governments’ (honest) recession expectations.…”

Section: Resultsmentioning

confidence: 99%

Political cycles: Beyond rational expectations

Bohn

2018

PLoS ONE

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Motivation and methodExisting rational expectations models cannot satisfactorily explain why political budget manipulations systematically raise re-election chances and only occur in “specific contexts”. This paper offers a theoretical explanation by including unsophisticated voters into an opportunistic political cycle model; unsophisticated voters are unable to take the optimal behaviour of other agents (fully) into account, but may, nonetheless, vaguely suspect government deception.ResultsFirst, rationally expected manipulations are, on average, fruitless in equilibrium. By including unsophisticated voters we can, however, corroborate empirically found electoral effects of political budget manipulations. Second, unsophisticated voters become anxious and suspicious in an intransparent or uncertain world, but the government tries to “outperform” their scepticism by increasing budget manipulations in order to appear more competent and, ultimately, increase re-election chances. It is, therefore, not surprising that political budget cycles are observed in countries suffering from intransparencies such as developing countries or new democracies. Third and in addition, the model presented here predicts that political opportunism produces, unintentionally, a countercyclical policy effect in election years, thereby, for instance, alleviating the typical problem of policy procyclicality in developing countries.Additional contributionThe paper also offers a theoretical explanation for political distortions found in forecasts by US states. Based on overly optimistic revenue forecasts the incumbent state government can conduct expansionary fiscal policies in order to appear more competent prior to an upcoming election. Since the resulting deficit can only be observed afterwards, the government can effectively circumvent a constitutional balanced budget constraint. As a result, there are political forecast and budget cycles in the state. More generally, however, these findings may also apply to European countries where balanced budget constraints are or will be in place (for instance the debt brakes in Switzerland and Germany); similarly, they apply to the supra-national European Fiscal Compact of the European Union.

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Section: Resultsmentioning

confidence: 99%

Political cycles: Beyond rational expectations

Bohn

2018

PLoS ONE

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“…First, it is not designed to capture the possible endogeneity in the relationships between variables, which might, in turn, bias significantly the results. Second, it does not allow the simultaneity and, thus, we are not able to observe the direct and indirect impacts of variables on each other (Imbs 2004;Magrini, Gerolimetto, and Duran 2013). To address these issues, we estimate the system using a 3SLS estimator introduced by Zellner and Theil (1962).…”

Section: Estimation Methods and Resultsmentioning

confidence: 99%

“…Moreover, he argues that most of the leading regions have large employment share in manufacturing and a lesser share in services and government. Similarly, Magrini, Gerolimetto, and Duran (2013) have investigated the determinants of lead/lag behavior across 48 states between 1979 and 2010 and found that states that specialize in high-tech goods tend to anticipate persistently the business cycles. Lastly, Park and Hewings (2003) have studied the cyclical behavior of five Midwest states and found that states that specialize more in manufacturing tend to respond more promptly to economic shocks.…”

Section: Methodsmentioning

confidence: 99%

Determinants of co-movement and of lead and lag behavior of business cycles in the Eurozone

Duran

Ferreira-Lopes

2016

International Review of Applied Economics

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In this paper we study business cycle correlations in the Eurozone and its determinants. Additionally, we also analyze the determinants of the lead and lag behavior of business cycles in the Eurozone. We explore the relevance, in the Eurozone context, using GDP and employment as the business cycle measures, of the determinants of business cycle synchronization identified in the literature, namely bilateral trade intensity, dissimilarity of labor market rigidity, dissimilarity in industrial structures, financial openness, and foreign direct investment relations. We estimate a simultaneous 4-equations model by Ordinary Least Squares (OLS) and three-stage least square to investigate empirically the above-mentioned determinants of business cycle correlation. Bilateral trade relations present a positive influence on business cycle correlations, while the dissimilarity of labor market rigidity presents a negative influence. The rest of the above-mentioned variables are non-significant. These results are robust to the use of the Hodrick-Prescott-filter and first differences as the de-trending methods, as well as the use of GDP as the business cycle measure, excluding the financial crisis years (2008 and 2009). Results for employment as the business cycle measure are in contrast with the previous ones, and found industrial dissimilarity to be the relevant variable to determine business cycles synchronization. In what concerns the determinants of the lead and lag behavior, results show that the member states of the Eurozone that usually lead the cycle are the ones that are wealthier, with strict employment legislation, more specialized in construction and finance sectors, and more prone to international capital movements. Differences in the determinants between contemporaneous business cycles and lead and lag behavior of business cycles are especially important for policy-makers in the Eurozone to know about, in particular if asymmetric shocks between countries are set in place.

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“…Related with our paper, Magrini, Gerelimetto, and Duran (2013) investigate the determinants of the lead-lag behavior the business cycle between states. Guha andBanerji (1998/1999) find that the patterns of states' cyclical movement in employment differ significantly from the U.S. employment cycle.…”

Section: Introductionmentioning

confidence: 99%

Business cycle synchronization across U.S. states

Aguiar‐Conraria

Brinca

Gudjonsson

et al. 2016

The B.E. Journal of Macroeconomics

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We use wavelet analysis to conclude that individual U.S. states' business cycles are very well synchronized. We also find evidence of a strong and significant correlation between business cycle dissimilitudes and the distance between each pair of states, consistent to gravity type mechanisms where distance affects trade. Trade, in turn, increases business cycle synchronization, while a higher degree of industry specialization is associated with a higher dissimilitude of the state cycle with the aggregate economy. Finally, there is evidence that business cycle dissimilitudes have been decreasing with time, consistent with the previous findings coupled with the idea that information and communications technology make distances smaller.

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Business cycle dynamics across the US states

Cited by 10 publications

References 37 publications

Political cycles: Beyond rational expectations

Political cycles: Beyond rational expectations

Determinants of co-movement and of lead and lag behavior of business cycles in the Eurozone

Business cycle synchronization across U.S. states

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