An Alternative Definition of Economic Regions in the U.S. Based on Similarities in State Business Cycles

Since several recent studies concentrate on similarities and differences in regional business cycles, this paper groups states into regions based not on a broad set of socioeconomic characteristics but on the similarities in their business cycles. The analysis makes use of a consistent set of coincident indexes estimated from a Stock and Watson-type model. The author applied k-means cluster analysis to the cyclical components of these indexes to group the 48 contiguous states into eight regions with similar cycles. Having grouped the states into regions, he determines the relative strength of cohesion among the states in the various regions. Finally, he compares the regions defined in this paper with the BEA regions.