National Bureau of Economic Research

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  1. National Bureau of Economic Research

The **National Bureau of Economic Research (NBER)** is a private, non-profit research organization widely regarded as the leading authority on business cycle dating in the United States. Founded in 1920, the NBER conducts and disseminates impartial economic research to foster a better understanding of the economy and to promote sound public policy. While independent and non-partisan, its research profoundly influences academic discourse, government policy, and financial market analysis. This article will delve into the history, functions, key areas of research, methodology, publications, influence, and criticisms of the NBER, offering a comprehensive overview for beginners.

History and Founding

The NBER’s origins lie in the aftermath of World War I, a period of significant economic instability. A group of economists, recognizing the need for systematic, objective analysis of business cycles – the periodic but irregular fluctuations in economic activity – established the organization. Initial funding came from the Carnegie Corporation of New York, and the early focus was on understanding the causes of the 1920-21 depression. The founders, including Edwin F. Gay, Wesley C. Mitchell, and Arthur F. Burns, believed that rigorous, data-driven research was essential for informed economic policymaking. The organization’s early work was pivotal in developing the field of macroeconomics and establishing the importance of empirical analysis. The Great Depression of the 1930s further solidified the NBER’s role as a crucial resource for understanding economic downturns.

Core Functions and Activities

The NBER’s primary function is to undertake and disseminate economic research. It achieves this through several key activities:

  • **Research Programs:** The NBER organizes research into various programs, each focusing on a specific area of economics. These programs bring together leading economists to collaborate on projects and share findings. Current programs cover a broad spectrum, from asset pricing and behavioral economics to development economics and public economics.
  • **Workshops and Conferences:** The NBER regularly hosts workshops and conferences that provide a platform for researchers to present their work, receive feedback, and network with colleagues. These events are vital for fostering innovation and disseminating new ideas.
  • **Data Collection and Dissemination:** The NBER maintains and distributes a vast collection of economic data, including historical time series on income, employment, and industrial production. This data is widely used by researchers and policymakers. They also contribute significantly to technical analysis by providing historical data sets.
  • **Business Cycle Dating:** Perhaps the NBER's most well-known function is its Business Cycle Dating Committee, which officially declares the beginning and end dates of recessions and expansions in the U.S. economy. This is a crucial function that impacts financial markets and policy decisions.
  • **Publication of Research:** The NBER publishes its research in various formats, including working papers, technical reports, and books. These publications are widely accessible and contribute significantly to the economic literature.

Key Areas of Research

The NBER’s research encompasses virtually all areas of economics. Some of the most prominent areas include:

  • **Macroeconomics:** Studies of the economy as a whole, including inflation, unemployment, economic growth, and monetary and fiscal policy. This research often informs fundamental analysis.
  • **Microeconomics:** Examines the behavior of individual economic agents, such as consumers, firms, and workers.
  • **Labor Economics:** Focuses on issues related to the labor market, including wages, employment, unemployment, and labor productivity.
  • **Financial Economics:** Studies the functioning of financial markets, including asset pricing, corporate finance, and risk management. This is fundamentally linked to understanding candlestick patterns.
  • **Public Economics:** Analyzes the role of government in the economy, including taxation, public spending, and social welfare programs.
  • **Development Economics:** Examines the economic challenges facing developing countries, including poverty, inequality, and economic growth.
  • **Health Economics:** Studies the application of economic principles to health and healthcare.
  • **Behavioral Economics:** Integrates psychological insights into economic models to better understand human decision-making. Key concepts include cognitive biases and prospect theory.
  • **Productivity:** Analyses of productivity growth and its determinants. This directly influences long-term economic trends.

Methodology and Approach

The NBER’s research is characterized by its rigorous methodology and commitment to objectivity. Researchers typically employ a variety of methods, including:

  • **Econometrics:** The use of statistical methods to analyze economic data. This includes regression analysis, time series analysis, and causal inference techniques. Understanding statistical arbitrage requires a strong grasp of econometrics.
  • **Theoretical Modeling:** The development of mathematical models to explain economic phenomena.
  • **Experimental Economics:** The use of controlled experiments to test economic theories.
  • **Historical Analysis:** The examination of historical data to understand long-term economic trends and patterns. This is crucial for identifying recurring market cycles.
  • **Data Analysis:** The NBER places a strong emphasis on the quality and reliability of its data. They often develop and maintain their own datasets to ensure accuracy and consistency. They use data mining techniques to identify potential leading indicators.

The NBER emphasizes peer review and replication of results to ensure the quality and validity of its research. Researchers are encouraged to make their data and code publicly available, promoting transparency and reproducibility.

Business Cycle Dating: A Detailed Look

The NBER’s Business Cycle Dating Committee is comprised of a panel of economists who meet regularly to assess the state of the U.S. economy. The committee’s primary goal is to identify the peaks and troughs of the business cycle, thereby defining recessions and expansions.

The committee does *not* rely on a single indicator to determine the dates of turning points. Instead, it considers a wide range of economic variables, including:

  • **Real GDP:** Gross Domestic Product adjusted for inflation.
  • **Employment:** The number of people employed.
  • **Industrial Production:** The output of factories, mines, and utilities.
  • **Income:** Personal income less transfer payments.
  • **Sales:** Retail and wholesale sales.

The committee’s decisions are based on a holistic assessment of these variables, taking into account their magnitude, duration, and diffusion. The committee emphasizes that a recession is a significant decline in economic activity spread across the economy, not merely a decline in one or two indicators. They don't aim to predict recessions, but rather to accurately date them *after* they have begun. This is a key distinction when considering risk management strategies.

The dating of business cycles is not an exact science, and the committee’s decisions are sometimes subject to revision as new data become available. However, the NBER’s dating decisions are widely accepted as the authoritative record of U.S. business cycles. Understanding these cycles is paramount for long-term investing.

Publications and Dissemination

The NBER publishes its research through a variety of channels:

  • **NBER Working Papers:** Preliminary versions of research papers that are made freely available online. These papers often represent ongoing research and are subject to revision before publication in peer-reviewed journals.
  • **NBER Technical Reports:** More detailed and technical reports on specific research projects.
  • **NBER Books:** Collections of essays and research papers on specific topics.
  • **NBER Conference Reports:** Summaries of the proceedings of NBER conferences and workshops.
  • **NBER Digest:** A monthly newsletter summarizing recent NBER research.
  • **NBER Bulletin:** A quarterly publication featuring articles on NBER research and activities.

The NBER also maintains a comprehensive website ([1](https://www.nber.org/)) that provides access to its publications, data, and research programs. Their research is often cited in financial news and reports, impacting market sentiment.

Influence and Impact

The NBER’s research has had a profound impact on economic thought and policymaking. Its work has influenced:

  • **Academic Research:** The NBER has trained generations of leading economists and has set the standard for rigorous economic research.
  • **Government Policy:** NBER research has informed policy decisions on a wide range of issues, including monetary policy, fiscal policy, and labor market regulation. The Federal Reserve frequently references NBER data and research.
  • **Financial Markets:** The NBER’s dating of business cycles and its research on financial markets have a significant impact on investor expectations and asset prices. Traders often monitor NBER announcements for potential trading opportunities.
  • **Public Understanding of the Economy:** The NBER’s publications and outreach activities help to educate the public about economic issues.

The NBER’s objectivity and independence have earned it a reputation as a trusted source of economic information. Its research is widely cited by policymakers, academics, and the media. Understanding its analysis is crucial for interpreting economic indicators.

Criticisms and Limitations

Despite its prominence, the NBER has faced some criticisms:

  • **Lagged Dating:** The NBER’s dating of business cycles is often done with a lag, meaning that the official dates of recessions and expansions are not announced until after the fact. This can limit the usefulness of its dating decisions for real-time economic analysis.
  • **Subjectivity:** While the NBER strives for objectivity, the dating of business cycles inevitably involves some degree of subjectivity. Different economists may have different interpretations of the available data.
  • **Focus on the U.S. Economy:** The NBER’s primary focus is on the U.S. economy, and its research on other countries is less extensive.
  • **Potential for Bias:** While the NBER is non-partisan, some critics argue that its research may be influenced by the prevailing economic ideology of its researchers. This can affect interpretations of market psychology.
  • **Data Revisions:** The NBER relies on government data which is subject to revisions. These revisions can sometimes alter the dating of business cycles. This highlights the importance of understanding data limitations in economic analysis.
  • **Limited Predictive Power:** While excellent at identifying business cycles after they occur, the NBER’s methodology doesn’t reliably *predict* future economic downturns. This impacts the effectiveness of preventative strategies.


Despite these criticisms, the NBER remains the most respected authority on business cycle dating and economic research in the United States. Its contributions to our understanding of the economy have been invaluable. Furthermore, the NBER continually refines its methodologies, addressing past criticisms and adapting to evolving economic landscapes. Understanding the NBER’s influence is essential for anyone involved in investment strategies.

Resources for Further Learning

Macroeconomics Microeconomics Econometrics Financial Economics Public Economics Labor Economics Economic Indicators Business Cycle Federal Reserve Quantitative Analysis

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