Business-Cycle Durations and Postwar Stabilization of the U.S. Economy

Average postwar expansions are twice as long as prewar expansions, and contractions are one-half as long. This paper investigates three possible explanations. The first explanation is that shocks to the economy have been smaller in the postwar period. The second explanation is that the composition of output has shifted from very cyclical sectors to less cyclical sectors. The third explanation is that the apparent stabilization is largely spurious and is caused by differences in the way that prewar and postwar business-cycle reference dates were chosen by the NBER. The evidence presented in this paper favors this third explanation. (JEL N10, E32)