Understanding the Role of the National Bureau of Economic Research

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The National Bureau of Economic Research (NBER) is a private, non-profit, non-partisan research organization in the United States that studies how the economy works and how public policy affects it. It is not a government agency. Its main output is a large series of working papers written by affiliated academic economists, and it is also the body whose committee sets the official start and end dates of U.S. recessions.

What the NBER Does

Founded in 1920 and based in Cambridge, Massachusetts, the NBER supports investigation and analysis of major economic issues and shares the results with academics, public and private decision-makers, and the general public.

Its empirical research falls into four broad types:

1. Developing new statistical measurements of the economy
2. Estimating quantitative models of economic behavior
3. Assessing the effects of public policies on the U.S. economy
4. Projecting the effects of alternative policy proposals

The first category has a long history. Early NBER work on measuring national income, associated with Simon Kuznets in the 1930s, fed into the national accounts that eventually produced official gross domestic product (GDP) statistics.

How the NBER Works

People

The NBER has small offices; most of its activity happens through its affiliated researchers, who keep their positions at universities and other institutions. Most affiliates fall into one of two groups:

• Faculty Research Fellows (FRFs): typically junior scholars earlier in their careers.
• Research Associates (RAs): tenured faculty at their home institutions, whose appointments are approved by the NBER Board of Directors.

As of 2021, 38 current or past board members and research affiliates had received the Nobel Prize in Economics. Paul Krugman once described the NBER as a professional network made concrete: in many subfields, nearly every prominent economist is an associate, and releasing new work as an NBER working paper is standard practice.

Funding

The organization is funded by research grants from government agencies and private foundations, investment income, and contributions from individuals and corporations. Its financial statement showed $32 million in revenue for the fiscal year ended June 30, 2020.

Working papers

The working paper series is the NBER’s best-known product. Its purpose is speed: a paper can reach economists, journalists and policymakers months or years before journal publication, and early criticism can improve the work.

Recession Dating: The Business Cycle Dating Committee

The committee determines the month when U.S. economic activity peaks (the start of a recession) and the month it bottoms out (the trough, which ends the recession).

The NBER defines a recession as a significant decline in economic activity that is spread across the economy and lasts more than a few months. The committee weighs three criteria, depth, diffusion and duration, and treats them as partly interchangeable. It looks at a range of monthly indicators, such as employment and real personal income, rather than relying on a single number.

Two historical rulings show how this works:

• The Great Recession: dated from December 2007 (peak) to June 2009 (trough).
• The 2020 recession: dated from February 2020 to April 2020. It lasted only two months, but the decline was so deep and widespread that the committee classified it as a recession anyway.

Hypothetical example: the two-quarter rule vs. the NBER

Suppose real GDP falls slightly in two consecutive quarters while payrolls keep growing and household income holds steady. Under the media shorthand that “two negative quarters equal a recession,” this economy is in one. The NBER could conclude otherwise, because the decline is shallow and not spread across employment, income and spending. The reverse also happens: a sharp, broad collapse may qualify without two full quarters of falling GDP.

How NBER Research Is Used

• Policymakers use NBER studies on taxes, labor markets, health care and monetary policy when designing or evaluating programs.
• Investors and businesses follow the recession dates when studying how assets such as the S&P 500 behaved across past cycles.
• Academics use the working papers to track new methods and findings in their field.

Limitations

Recession dates arrive late. The committee waits until enough data has been revised to make a confident call, so announcements usually come many months after a turning point. The NBER does not forecast recessions, and its dates are useless as a real-time trading or budgeting signal.

Working papers are not peer reviewed. A paper in the series has not necessarily passed journal review, and its results may change or be challenged before final publication.

The network is selective. Because affiliation depends on appointment by peers and the board, critics have described the NBER as an insiders’ club. Its prominence means NBER papers can get more attention than equally good work from outside the network.

Individual papers are not NBER positions. The organization does not make policy recommendations. Findings belong to the authors.

NBER vs. Government Statistical Agencies

The NBER is often confused with federal agencies because of the word “Bureau.” The distinctions:

The NBER uses data these agencies publish, such as employment and income figures, but it does not produce official statistics like the inflation rate or GDP.

The Bottom Line

Anyone who hears a recession called official should know the label comes from a private research committee that announces dates many months after the fact. Investors and businesses can use those dates to study past cycles, but not as a real-time signal. Readers of NBER working papers should treat the findings as the authors' own and remember that the results may change before journal publication.