The Shape of the Business Cycle: The View From U.S. States

ABSTRACT We produce business cycle chronologies for U.S. states and use them to study the shape of business cycles. We first provide strong evidence for positive duration dependence, that is to say, longer business cycle phases are, all else equal, more likely to end. However, the effect is overwhelmed by the impact of other macroeconomic indicators such as the stance of monetary policy, slope of the yield curve, and state‐specific characteristics. We further examine the relationship between the previous phase of the business cycle and the current one. We find that the shape of a given expansion is altered by the depth of the recession that preceded it, consistent with Milton Friedman's plucking model. However, we find little evidence that recessions are influenced by the preceding expansion.