An Alternative Definition of Economic Regions in the United States Based on Similarities in State Business Cycles

Since the 1950s the Bureau of Economic Analysis (BEA) has grouped the states into eight regions based primarily on cross-sectional similarities in their socioeconomic characteristics. This paper groups states into regions based on the similarities in their business cycles. We applied k-means cluster analysis to the cyclical components of Stock-Watson-type indices estimated at the state level to group the 48 contiguous states into eight regions with similar cycles. We then compare the cohesion of the regions so defined with the cohesion of the BEA regions. Finally, we examine how that definition affects the results of some recent regional business cycle analysis. © 2005 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Business Cycle Phases in U.S. States

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. © 2005 President and Fellows of Harvard College and the Massachusetts Institute of Technology.