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On the Interaction Between Economic Growth and Business Cycles

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  • Ivan Mendieta-Muñoz

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Abstract

The 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.

Suggested Citation

  • Ivan Mendieta-Muñoz, 2014. "On the Interaction Between Economic Growth and Business Cycles," Studies in Economics 1417, School of Economics, University of Kent.
  • Handle: RePEc:ukc:ukcedp:1417
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    1. Mendieta-Muñoz, Ivan, 2015. "Is potential output growth falling?," MPRA Paper 68278, University Library of Munich, Germany.

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    More about this item

    Keywords

    growth and cycles; potential rate of growth; rate of growth consistent with a constant unemployment rate;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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