Some Recent Changes in Economic Growth, Cycles and Volatility

Countries and periods that benefit from higher economic growth trends are likely to enjoy additional gains from more moderate business cycles; with less frequent and/or milder recessions. Correspondingly, where and when growth gets to be disappointingly low, business cycles are likely to get less moderate, with recessions becoming more frequent and/or more severe. This association may have its source in changes in either the longer growth trends or intermediate cyclical movements. This paper illustrates this broad relationship with two examples from the recent economic history of Japan and the United States. The Japanese case is a dramatic shift from high growth and cyclical stability to stagnation and a succession of booms and busts. The U.S. case, while more moderate, shows similar trend/cycle interactions. The last part of the paper sums up the necessary qualifications and conclusions. It addresses the changes over time in how people perceive the cycle-to-trend (and vice versa) connections, and how the economy reacts to the shocks and imbalances that may cause cyclical fluctuations.