Business Cycle and Economic Growth

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CHAPTER ONE INTRODUCTION 1. Background of the study According to Burns and Mitchell (1946), business cycles are a type of fluctuation found in the aggregate economic activity of nations that organize their work mainly in business enterprises: a cycle consists of expansions occurring at about the same time in many economic activities, followed by similarly general recessions, contractions, and revivals which merge into the expansion phase of the next cycle. With regards to Burns and Mitchell's definition of business cycles has two key features. The first is the comovement among individual economic variables. Indeed, the comovement among series, taking into account possible leads and lags in timing, was the centerpiece of Burns and Mitchell's methodology. In their analysis, Burns and Mitchell considered the historical concordance of hundreds of series, including those measuring commodity output, income, prices, interest rates, banking transactions, and transportation services. They used the clusters of turning points in these individual series to determine the monthly dates of the turning points in the overall business cycle. Similarly, the early emphasis on the consistent pattern of comovement among various variables over the business cycle led directly to the creation of composite leading, coincident, and lagging indexes (e.g., Shishkin, 1961). The second prominent element of Burns and Mitchell's definition of business cycles is their division of business cycles into separate phases or regimes. Their analysis, as was typical at the time, treats expansions separately from contractions. For example, certain series are classified as leading or lagging indicators of the cycle, depending on the general state of business conditions. Both of the features highlighted by Burns and Mitchell as key attributes of business cycles were less emphasized in postwar

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