In this paper, we propose a new family of multivariate loss functions to test the rationality of vector forecasts without assuming independence across variables. When only one variable is of interest, the loss function reduces to the flexible asymmetric family proposed by Elliott, Komunjer, and Timmerman (2008). Following their methodology, we derive~a GMM test for multivariate forecast rationality that allows the forecaster's loss to be nonseparable across variables and takes into account forecast estimation uncertainty. We use our test to study the joint rationality of macroeconomic forecasts in the growth rate of nominal output, CPI inflation rate, and short-term interest rate.

This paper develops a framework for inferring common Markov-switching components in panel data sets with large cross-section and time series dimensions. We study similarities and differences across U.S. states in the timing of business cycles. We hypothesize that there exists a small number of cluster designations, with individual states in a given cluster sharing certain business cycle characteristics. We find that although oil-producing and agricultural states can sometimes experience a separate recession from the rest of the United States, for the most part, differences across states appear to be a matter of timing, with some states entering recession or recovering before others.

The U.S. aggregate business cycle is often characterized as a series of distinct recession and expansion phases. We apply a regime-switching model to state-level coincident indices to characterize state business cycles in this way. We find that states differ a great deal in the levels of growth that they experience in the two phases: Recession growth rates are related to industry mix, whereas expansion growth rates are related to education and age composition. Further, states differ significantly in the timing of switches between regimes, indicating large differences in the extent to which state business cycle phases are in concord with those of the aggregate economy.

A key question that has arisen during recent debates is whether government spending multipliers are larger during times when resources are idle. This paper seeks to shed light on this question by analyzing new quarterly historical data covering multiple large wars and depressions in the United States and Canada. Using Jorda's (2005) method for estimating impulse responses, we find no evidence that multipliers are greater during periods of high unemployment in the United States. In every case, they are below unity. We do find evidence of higher multipliers during periods of slack in Canada, with some multipliers above unity.

Recent studies using long-run restrictions question the validity of the technology-driven real business cycle hypothesis. We propose an alternative identification that maximizes the contribution of technology shocks to the forecast-error variance of labor productivity at a long but finite horizon. In small-sample Monte Carlo experiments, our identification outperforms standard long-run restrictions by significantly reducing the bias in the short-run impulse responses and raising their estimation precision. Unlike its long-run restriction counterpart, when our Max Share identification technique is applied to U.S. data, it delivers the robust result that hours worked responds negatively to positive technology shocks.