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The comovement of investment and GDP


There’s much more to the business cycle than fluctuations in GDP. There are all sorts of other variables that comove (that is, that fluctuate in more or less systematic ways) with GDP. It’s easy to understand that, when GDP is going up, the unemployment rate often is going down. Other series that comove may not be so easy to see.

Here we use a scatter plot (instead of a line graph) to show comovement between GDP and private investment. The cloud of points is clearly following a lower-left to upper-right path, which shows positive comovement. (Economists like to say that private investment is procyclical.) Note also that the range of the growth rate for private investment on the y axis is much wider than that for GDP on the x axis, reflecting that investment is much more volatile than GDP.

How this graph was created: Search for and select “Real Gross Private Domestic Investment,” then add the series “Real Gross Domestic Product.” Apply “Percent Change” to both series and select “Scatter” in the graph settings. If you wish, reduce the width of the lines in the settings of the first series.

Suggested by Christian Zimmermann

View on FRED, series used in this post: GDPC1, GPDIC1


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