Business Cycle Anatomy
We propose a new strategy for dissecting the macroeconomic time series, provide a template for the business-cycle propagation mechanism that best describes the data, and use its properties to appraise models of both the parsimonious and the medium-scale variety. Our findings support the existence of a main business-cycle driver but rule out the following candidates for this role: technology or other shocks that map to TFP movements; news about future productivity; and inflationary demand shocks of the textbook type. Models aimed at accommodating demand-driven cycles without a strict reliance on nominal rigidity appear promising.
A preliminary version of the empirical strategy of this paper appeared in Section 2 of Angeletos, Collard, and Dellas (2015); this earlier exploration is fully subsumed here. We thank the editor, Mikhail Golosov, and three anonymous referees for extensive feedback. For useful comments, we also thank Fabio Canova, Larry Christiano, Patrick Fève, Francesco Furlanetto, Jordi Galí, Lars Hansen, Franck Portier, Juan Rubio-Ramirez and participants at various seminars and conferences. Angeletos acknowledges the financial support of the National Science Foundation (Award #1757198). Collard acknowledges funding from the French National Research Agency (ANR) under the Investments for the Future program (Investissements d’Avenir, grant ANR-17-EURE-0010). The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
George-Marios Angeletos & Fabrice Collard & Harris Dellas, 2020. "Business-Cycle Anatomy," American Economic Review, vol 110(10), pages 3030-3070.