Multifractal Analysis of U.S. Industrial Production Over the Business Cycle 1919-2022

The U.S. index of industrial production is examined for long memory over 1919-2022. Hurst exponents are computed over twenty-four month windows preceding, centered on, and following the onset of each recession to examine how output evolves. This also enables us to explore whether economic activity is driven by entrepreneurial innovation (anti-persistent long memory with 0 ≤ H < ½) or by unsustainable Cantillon effects of monetary expansion and herding (persistent long memory with ½ < H ≤ 1). The multifractal character of industrial production varies systematically during recessions and expansions. The last months of an unsustainable expansion are characterized by suppression of the market’s normal entrepreneurial anti-persistence and the imposition of fractal long memory. Recovery re-establishes the anti-persistence associated with entrepreneurial experimentation and wipes out long memory processes. The turning point marking the start of a recession also resets industrial production’s fractal character.