The UK business cycle and the structure of the economy

• Authors: Pater Robert
• Languages of publication: EN

Abstracts

EN

It is widely known that various sectors of an economy may react differently to the business cycle, and, on the other hand, it may be affected by sector specific shocks. Not much light has been shed so far on the impact of the business cycle on the structure of an economy, and vice versa. This study models and empirically tests the relationship, using data on the United Kingdom economy, 1963Q1-2011Q4. The structure of the economy is analyzed taking into account gross value added and employment in NACE Rev1.1 sections (6-branch division). Gross value added is additionally analyzed from the expenditure point of view. The unobserved component model and SVAR/SVEC models are used. The business cycle is found to influence and be influenced by the structure of the economy. Some effects may persist longer than one cycle, affecting the long-run path of the economy.

Keywords

EN

business cycle; economy structure; sectoral cycle; sectoral comovement

• Publisher: Szkoła Główna Handlowa w Warszawie
• Journal: Prace i Materiały Instytutu Rozwoju Gospodarczego SGH
• Year: 2015
• Volume: 97: Economic cycles and uncertainty
• Pages: 67-93

Dates

published

2015

Contributors

author

Pater Robert

• Wyższa Szkoła Informatyki i Zarządzania w Rzeszowie, Instytut Gospodarki

References

• Alexopoulos, M., 2007. A monetary business cycle model with unemployment, Journal of Economic Dynamics and Control, 31 (12), 3904 3940.
• Ashcroft, B., Love, J., Malloy, E., 1991. New firm formation in the British counties with special reference to Scotland, Regional Studies, 25 (5), 395 409.
• Backus, D. K., Kehoe, P. J., Kydland, F. E., 1992. International real business cycles, Journal of Political Economy, 100 (4), 745-775.
• Backus, D. K., Kehoe, P. J., 1992. International evidence on the historical properties of business cycles, American Economic Review, 82 (4), 864-88.
• Basu, S., Fernald, J., Kimball, M., 2006. Are technology improvements contractionary?, American Economic Review, 96 (5), 1418-1448.
• Baxter, M., King, R., 1999. Measuring business cycles: Approximate band pass filters for economic time series, Review of Economics and Statistics, 81 (4), 575-593.
• Blackburn, K., Ravn, M. O., 1992. Business cycles in the United Kingdom: Facts and fictions, Economica, 59 (236), 383-401.
• Blanchard, O. J., Quah, D., 1989. The dynamic effects of aggregate demand and supply disturbances, American Economic Review, 79 (4), 655-673.
• Buch, C., M., Lipponer, A., 2005. Business cycles and FDI: Evidence from German sectoral data, Review of World Economics, 141 (4), 732-759.
• Burns, A. F., Mitchell, W. C., 1946. Measuring business cycles, New York: National Bureau of Economic Research.
• Burren, D., Neusser, K., 2013. The role of sectoral shifts in the decline of real GDP volatility, Macroeconomic Dynamics, 17 (3), 477-500.
• Caporale, G. M., 1997. Common features and output fluctuations in the United Kingdom, Economic Modelling, 14 (1), 1-9.
• Cheng, S., 2011. Business cycle, industrial composition, or regional advantage? A decomposition analysis of new firm formation in the United States, Annals of Regional Science, 47 (1), 147-167.
• Cheung, Y. W., Westermann, F., 2003. Sectoral trends and cycles in Germany, Empirical Economics, 28 (1), 141-156.
• Canova, F., 1998. Detrending and business cycle facts, Journal of Monetary Economics, 41 (3), 475-512.
• Cubadda, G., Savio, G., Zelli, R., 2002. Seasonality, productivity shocks, and sectoral comovements in a real business cycle model for Italy, Macroeconomic Dynamics, 6 (3), 337-356.
• Dickey, D. A., Fuller, W. A., 1979. Estimators for autoregressive time series with a unit root, Journal of the American statistical Association, 74 (366), 427-431.
• Dolado, J. J., Lütkepohl, H., 1996. Making Wald tests work for cointegrated VAR systems, Econometric Reviews, 15 (4), 369-386.
• Durlauf, S. N., 1989. Output persistence, economic structure, and the choice of stabilization policy, Brookings Papers on Economic Activity, 2, 69-136.
• Eickmeier, S., 2007. Business cycle transmission from the US to Germany - A structural factor approach, European Economic Review, 51 (3), 521-551.
• Engle, R. F., Issler, V., 1995. Estimating common sectoral cycles, Journal of Monetary Economics, 35 (1), 83-113.
• Fukuda, K., 2008. Differentiating between business cycles and growth cycles: evidence from 15 developed countries, Applied Economics, 40 (7), 875 883.
• Galí, J., 2008. Monetary policy, inflation, and the business cycle: An introduction to the new Keynesian framework, Princeton: Princeton University Press.
• Harvey, A. C., 1989. Forecasting structural time series models and the Kalman filter, Cambridge: Cambridge University Press.
• Harvey, A. C., Mills, T. C., 2002. Common features in UK sectoral output, Economic Modelling, 19 (1), 91-104.
• Hornstein, A., Praschnik, J., 1997. Intermediate inputs and sectoral comovement in the business cycle, Journal of Monetary Economics, 40 (3), 573-595.
• Hornstein, A., 2000. The business cycle and industry comovement, Federal Reserve Bank of Richmond Economic Quarterly, 86 (1), 27-48.
• Hughes, A., M., 1997. The recession of 1990: An Austrian explanation, Review of Austrian Economics, 10 (1), 107-123.
• Jaimovich, N., Siu, H. E., 2012. The trend is the cycle: Job polarization and jobless recoveries, National Bureau of Economic Research Working Paper No. 18334.
• Kydland, F. E., Prescott, E. C., 1990. Business cycles: Real facts and a monetary myth, Federal Bank of Minneapolis Quarterly Review, 14 (2), 3-18.
• Lanne, M., Lütkepohl, H., Saikkonen, P., 2002. Comparison of unit root tests for time series with level shifts, Journal of Time Series Analysis, 23 (6), 667-685.
• Leamer, E. E., 2008. What’s a recession, anyway?, National Bureau of Economic Research Working Paper 14221.
• Liu, T., Spector, L. C., 2005. Dynamic employment adjustments over business cycles, Empirical Economics, 30 (1), 151-169.
• Long, J. B., Plosser, C. I., 1983. Real business cycles, Journal of Political Economy, 91 (1), 39-69.
• Lucas, R E., 1977. Understanding business cycles, Carnegie-Rochester Conference Series on Public Policy, 5, 7-29.
• Lütkepohl, H., 2005. New introduction to multiple time series analysis, Berlin: Springer-Verlag.
• Mills, T. C., 2003. Modelling trends and cycles in economic time series, New York: Palgrave Macmillan.
• Mintz, I., 1969. Dating Postwar Business Cycles: Methods and Their Application to Western Germany, 1950-1967, National Bureau of Economic Research Occasional Paper No. 107.
• Montgomery, M., R., 2006. Austrian persistence? Capital-based business cycle theory and the dynamics of investment spending, Review of Austrian Economics, 19 (1), 17-45.
• Mulligan, R., F., 2002. A Hayekian analysis of the term structure of production, The Quarterly Journal of Austrian Economics, 5 (2), 17-33.
• Pater, R., 2011. Wskaźniki wyprzedzające dla rynku pracy, Prace i Materiały Instytutu Rozwoju Gospodarczego SGH, 87, 117-140.
• Perez, P. J., 2001. Cyclical properties in the main western economies, University of Manchester Discussion Paper Series No. 33.
• Perron, P., 1989. The great crash, the oil price shock, and the unit root hypothesis: Erratum, Econometrica, 61 (2), 248-249.
• Perron, P., 1997. Further evidence on breaking trend functions in macroeconomic variables, Journal of Econometrics, 80 (2), 355-385.
• Rebelo, S., 2005. Real business cycle models: Past, present, and future, Scandinavian Journal of Economics, 107 (2), 217-238.
• Saikkonen, P., Lütkepohl, H., 2002. Testing for a unit root in a time series with a level shift at unknown time, Econometric Theory, 18 (2), 313-348.
• Saroliya, G., 2007. The New Keynesian business cycle achievements and challenges, Portuguese Economic Journal, 6 (2), 95-116.
• Seddighi, H. R., Lawler, K. A., Katos, A. V., 2000. Econometrics. A practical approach, London and New York: Routledge.
• Shea, J., 2002. Complementarities and comovements, Journal of Money, Credit and Banking, 34 (2), 412-433.
• Skrzypczyńska, M., 2012. Cykl koniunkturalny w Polsce – analiza sektorowa, Bank i Kredyt, 44 (2), 175-206.
• Stockman, A. C., 1988. Sectoral and national aggregate disturbances to industrial output in seven European countries, Journal of Monetary Economics, 21 (2-3), 387-409.
• Tang, J. H., 2007. Gross job flows and technology shocks in nondurable and durable goods sectors, Journal of Macroeconomics, 29 (2), 326-354.
• Toda, H. Y., Yamamoto, T., 1995. Statistical inference in vector autoregressions with possible integrated processes, Journal of Econometrics, 66 (1-2), 225-250.
• Veldkamp, L., Wolfers, J., 2007. Aggregate shocks or aggregate information? Costly information and business cycle comovement, Journal of Monetary Economics, 54 (Supplement), 37-55.
• Yang, J-M., Kim, T-W., 2005. A search for leading sectors over the business cycle: The case of Korea, Japan and the World Economy, 17 (4), 480-495.
• Zarnowitz, V., Ozyildirim, A., 2006. Time series decomposition and measurement of business cycles, trends and growth cycles. Journal of Monetary Economics, 53 (7), 1717-1739.

Identifiers

ISSN

0866-9503