Economic Quarterly

The U.S. business cycle is characterized by the general increase and decrease of activity across all industries. When the pattern of industry comovement (documented here) is compared to corresponding properties of multi-sector growth models, a striking mismatch appears. Simply put, the basic multi-sector model has trouble accounting for the pattern of comovement. This problem holds whether one attributes the source of the business cycle to independent industry shocks or to mutually shared aggregate shocks.