On the Interaction Between Economic Growth and Business Cycles

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThe present paper studies the interaction between short-run fluctuations and economic growth by presenting empirical evidence of the impact of business cycle fluctuations on the rate of growth consistent with a constant unemployment rate in 13 Latin American and 18 OECD countries during the period 1981-2011. The results of both parametric (OLS and a panel estimator that allows for parameter heterogeneity and cross section dependence) and non-parametric (a penalized regression spline estimator) econometric techniques show that this measure of potential output experiences positive (negative) changes in periods of high (low) growth in the majority of countries, and, hence, that business cycles fluctuations have statistically significant effects on potential output. However, in contrast to the sample of OECD countries, less than half of the sample of Latin American countries experience statistically significant changes of this measure of potential output in periods of low growth.JEL Classification: E32,O40,O51,O54 Keywords: growth and cycles, potential rate of growth, rate of growth consistent with a constant unemployment rate.

Are long‐run output growth rates falling?

“…Other studies (IMF , 2010;Klump et al , 2008;León-Ledesma and Thirlwall , 2002;Mendieta-Muñoz , 2017;Schnabel , 2002;Thirlwall , 1969) have also identified the rate of growth consistent with a constant unemployment rate derived from the first difference version of Okun's law as a measure of a "potential" or "natural" output growth rate, without focusing on the evolution of the latter over time. The term "natural" stems from Roy Harrod's theoretical studies on the business cycle, who defined the natural rate of growth as the "the maximum rate of growth allowed by the increase of population, accumulation of capital, technological improvement and the work leisure preference schedule, supposing that there is always full employment in some sense" (Harrod , 1939: 30).…”

Modeling mechanism of economic growth using threshold autoregression models

“…In other words, if country authorities focus on the short-term behavior of the debt ratio, they may engage in repeated rounds of tightening in an effort to make the debt ratio converge with the official target, thereby undermining confidence and setting off a vicious circle of slow growth, deflation, and further tightening. Finally Mendieta-Muñoz (2014) showed that short-run fluctuations may affect the rate of growth. He studied 13 Latin American and 18 OECD economies during the period 1981-2011 and found evidence that business cycle fluctuations have significant impact on the rate of growth for the majority of studied economies.…”