On the Econometrics of World Business Cycles

Over the past 10 or 15 years, academic interest in business cycles has recovered to a level not matched perhaps since the 1930s. In his editorial statement in the first issue of Econometrics in 1933, Ragnar Frisch not only introduced a new word, econometrics, which he defined as quantitative economic theory, but also listed business cycle theory among four fields of particular interest to econometricians. This inclusion reflected the views not only of Frisch, but also of Hayek (1931). Tinbergen (1935), and others. This interest waned, however, in the 1950s and 1960s. A major factor leading to its reawakening was the paper by Robert Lucas (1977) on "Understanding Business Cycles." Perhaps this course of events was not surprising. A prerequisite for making much progress in this field was dynamic general equilibrium theory. By the 1970s, the basic theory had been developed, and neoclassical growth theory evolved as the dominant framework for business cycle analysis.