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Do business cycles result from stochastic shocks?

Published online by Cambridge University Press:  29 September 2023

Yi Zhu Open the ORCID record for Yi Zhu [Opens in a new window]
Yi Zhu*
Affiliation:
Department of mathematics, The State University of New York, Stony Brook, NY, USA
*
Email: yi.zhu.5519@gmail.com
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Abstract

According to the real business cycle theory, business cycles mainly result from random exogenous shocks. In this paper, this argument is tested. I extend the Wald–Wolfowitz runs test under the assumption that a recession lasts for two periods at least and an expansion lasts for $k$ periods at least with k ≥ 2. I apply the extended runs test to the three two-valued data recession-expansion series generated by the National Bureau of Economic Research and the Center for Economic and Policy Research. The test results reject the null hypothesis that they are generated in a random way for any $k$ even at the 1% significance level.

Keywords

Runs testUnit root testReal business cycle theoryRecessionExpansionDynamic stochastic general equilibrium
Type
Articles
Information
Macroeconomic Dynamics , First View , pp. 1 - 11
Copyright
© The Author(s), 2023. Published by Cambridge University Press

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References

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