DP1236 Aggregate and Regional Disaggregate Fluctuations

Author(s): Danny Quah

Publication Date: September 1995

Keyword(s): Aggregate Disturbance , Business Cycle , Distribution Dynamics , Regional Fluctuation , Stochastic Kernel

JEL(s): C32 , C33 , E32

Programme Areas: International Macroeconomics

Link to this Page: www.cepr.org/pubs/dps/DP1236.asp

This paper models fluctuations in regional disaggregates as a non-stationary, dynamically evolving distribution. Doing so enables the study of the dynamics of aggregate fluctuations jointly with those of the rich cross-section of regional disaggregates. For the United States, the leading state (regardless of which it happens to be) contains strong predictive power for aggregate fluctuations. This effect is difficult to understand if only aggregate disturbances affect aggregate business cycles through aggregate propagation mechanisms. Instead, a better picture might be one of a `wave' of regional dynamics, rippling across the national economy.