Abstract
Thisarticle explores the links between cyclical fluctuations andlong-run growth in the context of an endogenous growth modelwith aggregate demand externalities. In this model, aggregatedemand and growth rates are positively correlated. In the presenceof exogenous cyclical shocks, the model is able to generate persistentfluctuations through the effects that business cycles have onaggregate demand, profits and technological progress. Persistencebecomes a measure of the response to business cycles of growth-relatedvariables. Empirical evidence from a large sample of countriessuggests that there is indeed a correlation between how persistentfluctuations are and the long-term growth rates of GDP.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Aghion, P., and Peter Howitt. (1992). “A Model of Growth Through Creative Destruction,” Econometrica 60, 323-352.
Bernanke, Ben S., and Ilian Mihov. (1998). “Measuring Monetary Policy,” Quarterly Journal of Economics 113, 869-902.
Bernanke, Ben S., and Martin L. Parkinson. (1991). “Procyclical Labor Productivity and Competing Theories of the Business Cycle: Some Evidence from Interwar U.S. Manufacturing Industries,” Journal of Political Economy 99, 439-459.
Blanchard, Olivier, and Danny Quah. (1989). “The Dynamic Effects of Aggregate Supply Demand Disturbances,” American Economic Review 79, 655-673.
Caballero, Ricardo, and Mohamad L. Hammour. (1994). “The Cleansing Effect of Recessions,” American Economic Review 84, 1350-1368.
Cochrane, John H. (1988). “How Big Is the Random Walk in GNP?” Journal of Political Economy 96, 893-920.
Cochrane, John H. (1994). “Permanent and Transitory Components of GNP and Stock Prices,” Quarterly Journal of Economics 109, 241-265.
De Long, Bradford J. (1990) “Liquidation Cycles: Old Fashioned Real Business Cycle Theory and the Great Depression,” NBER Working Paper No. 3546.
Durlauf, Steven N. (1989). “Output Persistence, Economic Structure, and the Choice of Stabilization Policy,” Brookings Papers on Economic Activity 2, 69-116.
Fatás, Antonio. (1997). “Aggregate Demand Externalities, Multiple Equilibria and Intermediate Inputs,” Mimeo, INSEAD.
Fatás, Antonio. (2000). “Endogenous Growth and Stochastic Trends,” Journal of Monetary Economics 45, 107-128.
Galí, Jordi. (1999). “Technology, Employment and the Business Cycle: DoTechnology Shocks Explain Aggregate Fluctuations?” American Economic Review 89, 249-271.
Galí, Jordi, and Mohamad L. Hammour. (1991). “Long-Run Effects of Business Cycles,” Mimeo, Columbia University.
Grossman, Gene M., and Elhanan Helpman. (1991). Innovation and Growth in the Global Economy. Cambridge, MA: MIT Press.
Hall, Robert. (1991). “Recessions as Reorganizations,” NBER Macroeconomics Annual.
Jones, Charles I. (1995). “Time Series Tests of Endogenous Growth Models,” Quarterly Journal of Economics 110, 495-526.
King, Robert G., Charles I. Plosser, and Sergio T. Rebelo. (1988). “Production, Growth and Business Cycles, II. New Directions,” Journal of Monetary Economics 21, 309-341.
Kydland, Finn. E., and Edward C. Prescott. (1982). “Time to Build and Aggregate Fluctuations,” Econometrica 50, 1345-1370.
Murphy, Kevin, Andrei Shleifer, and Robert W. Vishny. (1989). “Industrialization and the Big Push,” Journal of Political Economy 97, 1003-1026.
Nelson, Charles, and Charles Plosser. (1982). “Trends and Random Walks in Macroeconomic Time Series,” Journal of Monetary Economics 10, 139-162.
Prescott, Edward C. (1986). “Theory Ahead of Business Cycle Measurement,” Carnegie-Rochester Conference Series on Public Policy 25.
Romer, David H. (1989). Comments to “Output Persistence, Economic Structure, and the Choice of Stabilization Policy,” Brookings Papers on Economic Activity 2, 117-125.
Saint-Paul, Gilles. (1993) “Productivity Growth and the Structure of the Business Cycle,” European Economic Review 37, 861-883.
Shapiro, Matthew, and Mark Watson. (1988) “Sources of Business Cycle Fluctuations.” NBER Macroeconomics Annual.
Shea, John. (1998) “What Do Technolocy Shocks Do?” NBER Macroeconomics Annual.
Shleifer, Andrei. (1986). “Implementation Cycles,” Journal of Political Economy 94, 1163-1190.
Stadler, George W. (1986). “Real Versus Monetary Business Cycle Theory and the Statistical Characteristics of Output Fluctuations,” Economic Letters 22, 51-54.
Stadler, GeorgeW. (1990). “Business Cycles Models with Endogenous Technology,” American Economic Review 4, 763-778.
Summers, Robert, and Alan Heston. (1991). “The PennWorld Table (Mark 5): An Expanded Set of International Comparisons, 1950–1988,” Quarterly Journal of Economics 106, 327-368.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Fatas, A. Do Business Cycles Cast Long Shadows? Short-Run Persistence and Economic Growth. Journal of Economic Growth 5, 147–162 (2000). https://doi.org/10.1023/A:1009885203490
Issue Date:
DOI: https://doi.org/10.1023/A:1009885203490