Economics Notes > Lse Economics Notes > Macroeconomic Principles Notes

Measuring Macroeconomic Fluctuations Notes

This is a sample of our (approximately) 13 page long Measuring Macroeconomic Fluctuations notes, which we sell as part of the Macroeconomic Principles Notes collection, a 2.1 package written at LSE in 2011 that contains (approximately) 260 pages of notes across 32 different documents.

Learn more about our Macroeconomic Principles Notes

Measuring Macroeconomic Fluctuations Revision

The following is a plain text extract of the PDF sample above, taken from our Macroeconomic Principles Notes. This text version has had its formatting removed so pay attention to its contents alone rather than its presentation. The version you download will have its original formatting intact and so will be much prettier to look at.

Measuring Macroeconomic Fluctuations Summary

Macroeconomic Fluctuations Trends and Seasonality Volatility Co-Movement Leads and Lags Behaviour of Key Macroeconomic Variables

Macroeconomic Fluctuations

Business Cycles = Fluctuations around the trend in real GDP Turning points in the deviations of real GDP from trend are peaks and troughs Booms = Persistent positive deviations from trend Recessions = Persistent negative deviations from trend

The Stylized Business Cycle
○ Amplitude = Maximum deviation from trend (on average)
○ Frequency = Number of cycles (on average) from peak to trough and back in a given amount of time
○ Persistence = Proportion of deviation from trend expected to remain a given time from now Graph showing the stylized business cycle

Trends and Seasonality

• If long-run growth rate is approx. constant then a linear trend line (with the variable in logarithms) is appropriate

• Long-run growth rates are not necessarily constant

○ Use Hodrick-Prescott (HP) filter to smooth out the trend line Example of a HP trend line

Course Notes Page 1

Seasonality Adjustment
○ Just because you have removed the trend does not mean that all remaining fluctuations are due to business cycles
○ Examples of seasonality:
 Investment is low in winter owing to difficulty of carrying out construction work
 High money demand during the Christmas holiday
○ Money supply contains a significant seasonal component
○ Can remove seasonality by subtracting the average deviation from trend in each month or season Graph of data that has been seasonally adjusted


• Business cycles are not regular and do not follow a precise pattern
○ They differ in amplitude and length

• However, there are relationships between economic variables over business cycles that do display some general patterns

Graph of percentage deviations from trend of real GDP

Course Notes Page 2

****************************End Of Sample*****************************

Buy the full version of these notes or essay plans and more in our Macroeconomic Principles Notes.