Did Leaving the Gold Standard Tame the Business Cycle? Evidence from NBER Reference Dates and Real GNP

Abstract

Cover and Pecorino (2005) claim that the March 1933 departure from the gold standard is the most probable break point ushering in an era of longer U.S. expansions, both absolutely and relative to subsequent recessions. Their analysis is based on cycle durations as defined by National Bureau of Economic Research (NBER) reference dates. However, much of macroeconomic analysis is based on (i) growth cycles (i.e., periods when the economy's production is above or below trend) rather than absolute increases or decreases in economic activity; and (ii) aggregate time series' volatility as the prime indicator of macroeconomic stability. In light of this, we reevaluate the March 1933 break point. First, using HP‐filtered quarterly gross national product (GNP), our analysis of growth cycle durations still implies a break point near 1933. Second, we test for structural breaks in the volatility of GNP growth rates and deviations from trends. These tests suggest a structural break considerably later than 1933, perhaps as late as the 1950s.

Output Growth and its Volatility: The Gold Standard through the Great Moderation

“…Researchers occasionally consider the possible structural changes in the duration of recessions and expansions. For example, , , and all investigate the possibility of break points in the business cycle, examining the duration of recessions and expansions. and use the NBER reference cycle data in their analysis.…”

“…and use the NBER reference cycle data in their analysis. also examine detrended real gross national product (GNP) growth in addition to the NBER reference cycles.…”