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Antonio Garcia-Ferrer: Departamento de Analisis Economico: Economia Cuantitativa, Universidad Autonoma de Madrid, Madrid, Spain
Ana del Rio: Departamento de Analisis Economico: Economia Cuantitativa, Universidad Autonoma de Madrid, Madrid, Spain
ACKNOWLEDGMENT: Research financed by CICYT, programme PB.90-0188.
Introduction
The reconstruction of the historical data of the US main economic indicators before the Second World War has allowed economic historians to characterize US business cycles since 1870. Based on the dating rules provided by the National Bureau of Economic Research (NBER) there is an accepted general belief that the business cycle before the Second World War was decidedly more severe than the post-war cycle. Many authors have emphasized this finding (see, e.g. Zarnowitz and Moore, 1986; De Long and Summers, 1986; Balke and Gordon, 1989).
However, Romer (1986, 1989) has challenged these stylized facts by paying attention to the reconstruction techniques used in obtaining estimates of three important economic indicators for the pre-war period, namely, GNP, unemployment and industrial production series. Although, to some degree, the source of the excess volatility in each series is very different, her studies results in similar conclusions, i.e. the severity of economic fluctuations on both sides of the Great Depression are roughly equal. These findings lead Romer to propose new pre-war business cycles dates.
Directly related to this issue are the historical changes in the timing of business cycles (duration from peak to trough, and trough to peak) that have also been the subject of recent controversies. Since, unfortunately, no employment or GNP series for pre-war years can be truly comparable to post-war series, all historical estimates presented so far have been built on highly debatable assumptions. For instance, Watson (1994) presents evidence that the change in timing of NBER cycles indeed reflects changing definitions rather than changing economic behaviour. Consequently, a general agreement about business cycle severity and duration before the Second World War seems hard to reach in the near future, and discrimination between the NBER and Romers's estimates is difficult to establish on quantitative terms.
The main intention of this paper is to describe and forecast both characterizations (NBER and Romer's) of the pre-war US reference cycles, using the methodology developed by Garcia-Ferrer and Queralt (1998) for the post-Second World War GNP data. This methodology makes use of...