THE PROPAGATION OF INDUSTRIAL BUSINESS CYCLES

This paper examines the evolution of the distribution of industry-specific business cycle linkages, which are modeled through a multivariate Markov-switching model and estimated by Gibbs sampling. Using nonparametric density estimation approaches, we find that the number and location of modes in the distribution of industrial dissimilarities change over the business cycle. There is a relatively stable trimodal pattern during expansionary and recessionary phases characterized by highly, moderately, and lowly synchronized industries. However, during phase changes, the density mass spreads from moderately synchronized industries to lowly synchronized industries. This agrees with a sequential transmission of the industrial business cycle dynamics.