NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Why Do Countries and Industries with Large Seasonal Cycles Also Have Large Business Cycles?

J. Joseph Beaulieu, Jeffrey K. MacKie-Mason, Jeffrey A. Miron

NBER Working Paper No. 3635
Issued in February 1991
NBER Program(s):   EFG

We show there is a strong, positive correlation across countries and industries between the standard deviation of the seasonal component and the standard deviation of the non-seasonal component of aggregate variables such as output, labor input, interest rates, and prices. After documenting this stylized fact, we discuss possible explanations and develop a model that generates our empirical finding. The main feature of the model is that firms endogenously choose their degree of technological flexibility as a function of the amounts of seasonal and non-seasonal variation in demand. Although this model is intended to be illustrative, we find evidence supporting one of its key empirical implications.

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Document Object Identifier (DOI): 10.3386/w3635

Published: Quarterly Journal of Economics, May 1992

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