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Product Prices and the OECD Cycle

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  • Kraay Aart

    ()
    (The World Bank)

  • Ventura Jaume

    ()
    (MIT)

Abstract

It is well known that business cycles in OECD countries exhibit a remarkable degree of synchronization. Much less known is that the peak of the OECD cycle is associated with high prices of labour-intensive products and low prices of capital-intensive ones. We document this cyclical behavior of product prices and argue that it offers an important clue as to why business cycles are so synchronized. Positive shocks in one or more countries raise the prices of labour-intensive products and, as a result, the demand for labour throughout the industrialized world. This generates increases in wages, employment and output in all industrial countries. Through this channel, shocks are positively transmitted across countries, creating a force towards the synchronization of business cycles.

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File URL: http://www.degruyter.com/view/j/bejm.2002.2.issue-1/bejm.2002.2.1.1030/bejm.2002.2.1.1030.xml?format=INT
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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 2 (2002)
Issue (Month): 1 (April)
Pages: 1-18

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Handle: RePEc:bpj:bejmac:v:advances.2:y:2002:i:1:n:1

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  1. Kraay, Aart & Ventura, Jaume, 1998. "Comparative advantage and the cross-section of business cycles," Policy Research Working Paper Series 1948, The World Bank.
  2. David Backus & Patrick J. Kehoe & Finn E. Kydland, 1993. "International Business Cycles: Theory and Evidence," NBER Working Papers 4493, National Bureau of Economic Research, Inc.
  3. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
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Cited by:
  1. Robert J. Barro & Silvana Tenreyro, 2000. "Closed and Open Economy Models of Business Cycles with Marked Up and Sticky Prices," NBER Working Papers 8043, National Bureau of Economic Research, Inc.
  2. Alejandro Cunat & Marco Maffezzoli, 2004. "Hecksher-Ohlin Business Cycles," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(3), pages 555-585, July.
  3. Keyu Jin, 2009. "International business cycles with heterogeneous sectors," LSE Research Online Documents on Economics 25828, London School of Economics and Political Science, LSE Library.
  4. Ellen McGrattan, 2001. "Predicting the effects of Federal Reserve policy in a sticky price model: an analytical approach," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.

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