ABSTRACT
The recent stagnation of many industrialized economies has revived research on the business cycle and on the effectiveness of measures to control it. Part of this literature has examined various historical measurements of output in order to study the relative volatility of the business cycle in different periods (Altman 1992; Backus and Kehoe 1992; Balke and Gordon 1989; Sheffrin 1989; Romer 1986, 1989). A dominant issue in recent work has been the effectiveness of Keynesian stabilization policy: it is claimed that if stabilization policy has been effective, evidence should show that the volatility of the business cycle has decreased since World War II, compared to earlier periods. One side maintains that there is little evidence of a decrease in volatility; the other, for the most part examining the same data over the same time period, claims that the cycle has been damped.
