THE SHIFTS IN LEAD‐LAG PROPERTIES OF THE U.S. BUSINESS CYCLE

We document shifts in the lead‐lag properties of the U.S. business cycle since the mid‐1980s. Specifically, (1) the well‐known inverted leading indicator property of real interest rates has completely vanished; (2) labor productivity switched from positively leading to negatively lagging output and labor inputs over the cycle; and (3) the unemployment rate shifted from lagging productivity negatively to leading positively. Many contemporary business cycle models produce counterfactual cross‐correlations revealing that popular frictions and shocks provide an incomplete account of business cycle comovement. Determining the underlying sources of these shifts in the lead‐lag properties and their consequences for macroeconomic forecasts is therefore a promising direction for future research. (JEL E24, E32, E43)