Business-Cycle Anatomy

Abstract

We propose a new strategy for dissecting the macroeconomic time series, provide a template for the business- cycle propagation mechanism that best describes the data, and use its properties to appraise models of both the parsimonious and the medium- scale variety. Our findings support the existence of a main business- cycle driver but rule out the following candidates for this role: Technology or other shocks that map to TFP movements; news about future productivity; and inflationary demand shocks of the textbook type. Models aimed at accommodating demand- driven cycles without a strict reliance on nominal rigidity appear promising.