Manufacturing Earnings and Cycles: New Evidence

In other words, we can look at it as the plot of a decomposition of the variance
against frequencies in the interval [0,7r].⁵ After normalising the spectrum using
the variance 7_i-(O), the area under the curve from ω₁ to ω₂ in Figure 1 is (half)
the share of total variance of X_f which can be attributed to the composite of the
waves in this range. Spectral analysis thus permits a natural decomposition of
a series into cyclical components defined over frequency bands we are interested
in. In terms of real wages, these may relate to 3- year wage contract cycles, 5-7
year business cycles and still longer cycles generated, for instance, by product
and process innovations.

2.2 Multivariate Measures

Identifying each of the multiple wage cycles that combine to produce the ob-
served wage time series does not in itself contain the most interesting infor-
mation from an economist’s viewpoint. To achieve this, we would need to
establish what each of the wages represents, if anything, from an economic

⁵Since the spectrum is an even function, it is not necessary to plot it in the entire range
[— 7Γ, 7Γ].

<<   3   4   5   6   7   8   9   >>

More intriguing information