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Product Prices and the OECD Cycle

Author

Listed:
  • 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.

Suggested Citation

  • Kraay Aart & Ventura Jaume, 2002. "Product Prices and the OECD Cycle," The B.E. Journal of Macroeconomics, De Gruyter, vol. 2(1), pages 1-18, April.
    • Handle: RePEc:bpj:bejmac:v:advances.2:y:2002:i:1:n:1
    DOI: 10.2202/1534-6013.1030
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    Cited by:

    1. Jin, Keyu, 2009. "International business cycles with heterogeneous sectors," LSE Research Online Documents on Economics 25828, London School of Economics and Political Science, LSE Library.
    2. Ellen R. 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.
    3. 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.
    4. Robert J. Barro & Silvana Tenreyro, 2001. "Closed and open economy models of business cycles with marked-up and sticky prices," Proceedings, Federal Reserve Bank of San Francisco, issue jun.
    5. Robert J. Barro & Silvana Tenreyro, 2006. "Closed and Open Economy Models of Business Cycles with Marked Up and Sticky Prices," Economic Journal, Royal Economic Society, vol. 116(511), pages 434-456, April.

    More about this item

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • F10 - International Economics - - Trade - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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