New research reveals hidden economic cycles, challenging previous understanding.
The researchers found that different methods used to analyze US real GDP trends and cycles gave conflicting results, but this was due to overlooking a significant change in the trend in 1973. Once this change was properly considered, all methods showed the same cycle with a non-stochastic trend, except for a few periods around 1973. Their new approach using a mixture of Normal distributions for errors accurately captured business cycles, including level shifts and changes in slope, and aligned well with common understandings of economic cycles.