MEASURING BUSINESS CYCLES WITH BUSINESS-CYCLE MODELS

Business cycles may be defined or measured by parametrizing detrending filters to maximize the ability of a business-cycle model to match th e moments of the remaining cycles. Thus a theory can be used to guide cycle measurement. We present two applications to U.S. postwar data. I n the first application, the cycles are measured with a standard, real -business-cycle model. In the second, they are measured using informat ion on capacity utilization and unemployment rates. Simulation methods are used to describe the properties of the GMM estimators and to allo w exact inference.