RIEB Discussion Paper Series No.2025-30

Title

Business-Cycle Dynamics: An Empirical Assessment

Abstract

This study provides an empirical assessment of business cycle dynamics using a structuralvector autoregressive (VAR) model that measures cyclical output and identifies business cycle shocks as the main drivers. Using the same data and reduced-form VAR setup as Angeletos et al. (2020, American Economic Review), we estimate the dynamic effects of this shock on the U.S. economy. The cyclical output indicated by the model closely tracked the standard measure of the output gap. The identified business cycle shock has long-lasting effects on both demand- and supply-side factors, permanently influencing output and affecting labor productivity and total factor productivity. These findings contradict the prevailing notion that business cycles are short-term phenomena and suggest that the forces driving them contribute to medium-term dynamics. This implies a pivotal connection between short-term stabilization and long-term growth.

Keywords

Business-cycle shocks; Structural vector autoregressive model; Finite-horizon identification; Cyclical output; Medium-term dynamics

JEL Classification

C32, E32

Inquiries

Masahiko SHIBAMOTO
Research Institute for Economics and Business Administration (RIEB)
Center for Computational Social Science (CCSS)
Kobe University, JAPAN
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: +81-78-803-7036
FAX: +81-78-803-7059