Common Trends and Common Cycles in Regional Per Capita Incomes

Cyclical dynamics at the regional level are investigated using newly developed time-series techniques that allow a decomposition of aggregate data into common trends and common cycles. We apply the common-trend/common-cycle representation to per capita personal income for the eight BEA regions using quarterly data for the 1948:1-93:4 period. Our analysis reveals considerable differences in the volatility of regional cycles. Controlling for differences in volatility, we find a great deal of co-movement in the cyclical response of four regions (New England, Mideast, Great Lakes, and Southeast), which we call the core regions, and the nation. We find some evidence of co-movement of the Plains, Rocky Mountain, and Far West regions and the nation, but to a much lesser extent than the co-movement among the core regions and the nation. Finally, the cyclical response of the Southwest region is strongly negatively correlated with that of all the other regions and the nation. The opinions expressed here are solely those of the authors and do not necessarily represent those of the Federal Reserve Bank of Philadelphia or the Federal Reserve System