PGL at Angry Bear writes:
Angry Bear: Robert Hall discusses Separating the Business Cycle from Other Economic Fluctuations at the Federal Reserve Bank of Kansas City's annual Jackson Hole conference. David Altig claims Hall explained it all. But what does Hall say about the most recent weakening of the labor market?
For example, all practical accounts of the recession of 2001 emphasize the huge decline in high-tech investment. In earlier recessions, declines in home-building were prominent features. On the other hand, more theoretically inclined macroeconomists tend to take a decline in productivity--or at least a pause in the normal growth of productivity--as the central driving force.
There is, however, a problem:
Nonfarm Business Productivity
What decline in productivity--or at least a pause in the normal growth of productivity--does Hall think that we are supposed to see in 2001, and identify as the driving force of the subsequent weakness in the labor market? There's no decline in productivity. There's no slowdown in productivity growth.
It is difficult to label something that doesn't exist as the "principal cause" of a business-cycle downturn...