When Did the Recession of 2001 Begin? Do We Care?

Greg Mankiw writes:

Greg Mankiw's Blog: Business Cycle Dating: Back in 2004, Michael Mandel of Businessweek gave me grief for saying that the 2001 recession began in late 2000, rather than at the official NBER date of March 2001. My view (and the view of the nonpartisan CEA staff) was that the data were substantially revised after the NBER committee made their call, and the March 2001 date no longer seemed right in light of the revised data. Mandel's view was that I was a Republican stooge.

Recently, a friend emailed me a paper on dating business cycles by the prominent time-series econometrician Jim Hamilton and coauthor Marcelle Chauvet. If you look at their Table 6 (page 53), you can find their estimated date for the start of the recession: September 2000.... I am happy to welcome Jim Hamilton into the Republican stooge club.

Menzie Chinn comments:

Econbrowser: The 2001 recession revisited: In a recent post, Greg Mankiw cites Hamilton and Chauvet in support of his view that a good argument could be made that the recession of 2001 actually began in 2000.... As some readers may recall, the 2004 Economic Report of the President contained this box, which states:

The National Bureau of Economic Research (NBER) uses a variety of economic data to determine the dates of business-cycle peaks and troughs.... [T]he four data series that the NBER used to determine the timing of the recession have been revised.... Real personal income less transfers... peaked in October 2000. Nonfarm payroll employment... peaked in February 2001. Industrial production['s] peak came even earlier, in June 2000. Manufacturing and trade sales... the most recent data show a peak in June 2000.... [M]onthly GDP reached a high point in February 2001....

The median date of the peak for the five series discussed here is October 2000....

First let me make the observation that while Mankiw prefers the multivariate Markov Switching results in Table 6 of Hamilton-Chauvet, it is by no means the only set of estimates in the paper. Table 8, using the recursive estimation methodology indicates a March 2001 recession date....

I refer first to what the NBER Business Cycle Committee states are the variables of importance....

Because a recession influences the economy broadly and is not confined to one sector, the committee emphasizes economy-wide measures of economic activity. The committee views real GDP as the single best measure of aggregate economic activity.... The traditional role of the committee is to maintain a monthly chronology, however, and the BEA's real GDP estimates are only available quarterly. For this reason, the committee refers to a variety of monthly indicators to determine the months of peaks and troughs.

The committee places particular emphasis on two monthly measures of activity across the entire economy: (1) personal income less transfer payments, in real terms and (2) employment. In addition, the committee refers to two indicators with coverage primarily of manufacturing and goods: (3) industrial production and (4) the volume of sales of the manufacturing and wholesale-retail sectors adjusted for price changes. The committee also looks at monthly estimates of real GDP such as those prepared by Macroeconomic Advisers (see http://www.macroadvisers.com). Although these indicators are the most important measures considered by the NBER in developing its business cycle chronology, there is no fixed rule about which other measures contribute information to the process....

So, while I think reasonable people can disagree on the starting point, for me, a revisiting of the data tells me the recession of 2001 took place in... 2001.