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Do business cycles result from stochastic shocks?
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- Journal:
- Macroeconomic Dynamics / Volume 28 / Issue 5 / July 2024
- Published online by Cambridge University Press:
- 29 September 2023, pp. 1150-1160
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- Article
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According to the real business cycle theory, business cycles mainly result from random exogenous shocks. In this paper, this argument is tested. I extend the Wald–Wolfowitz runs test under the assumption that a recession lasts for two periods at least and an expansion lasts for
$k$ periods at least with k ≥ 2. I apply the extended runs test to the three two-valued data recession-expansion series generated by the National Bureau of Economic Research and the Center for Economic and Policy Research. The test results reject the null hypothesis that they are generated in a random way for any 
$k$ even at the 1% significance level.
