THE CAUSES OF AMERICAN BUSINESS CYCLES:
AN ESSAY IN ECONOMIC HISTORIOGRAPHY
This paper surveys American business cycles over the past century.
Its task is to identify the causes of these cycles; other papers in this
collection address the nature of policy responses to these causes. This
paper can be seen as a test to discriminate between two views of the
American economy. The first is expressed in a characteristically vivid
statement by Dornbusch, who proclaimed recently: gNone of the U.S.
expansions of the past 40 years died in bed of old age; every one was
murdered by the Federal Reserveh (Dornbusch 1997). This stark view can
be contrasted with its opposite in the recent literature: g[N]one of the
popular candidates for observable shocks robustly accounts for the bulk
of business-cycle fluctuations in outputh (Cochrane 1994, p. 358).
I expand the time period to consider the past century, but it is easy
to distinguish the past 40 years, that is, the period since World War II. A
survey of business cycle causes over an entire century runs into several
problems, of which three seem noteworthy. First, it is not at all clear what
gcauseh means in this context. Second, the Great Depression was such a
large cycle that it cannot be seen as just another data point. Third, the
survey relies on the existing literature on business cycles, which is why I
have entitled it an essay in economic historiography. The paper proceeds
by discussing each of these problems in turn, then turning to the data,
and finally drawing some conclusions from the preceding efforts.
*Elisha Gray II Professor of Economics, Massachusetts Institute of Technology. The
author would like to thank Caroline Richards for research assistance. All errors remain the
BUSINESS CYCLES: DEFINITION AND ANALYSIS
The cause of a business cycle typically is taken to be a shock or
innovation to a relationship in the economy. Myriad relationships operate...