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On the Interdependence of Business Cycles and Economic Growth: The Case of Growth Hysteresis


  • Nuno Palma

    (Instituto Superior de Economia e Gestao)

  • Paulo Rosário

    (Instituto Superior de Economia e Gestao)


The purpose of this paper is to give an empirical answer to two related but different questions: First, are economic growth and business cycles interdependent? Second, is money neutral even in the long run? Using data from the United States, this paper finds (using a VAR model) and presents evidence for the interdependence hypothesis, and against the long-run money neutrality hypothesis. The results suggest that counter- cyclical growth models best capture the main channel of influence between cycles and growth. A policy implication is that, if money affects the cycle, it is not neutral even in the long run, and a positive monetary shock may result in hysteresis, having negative growth consequences.

Suggested Citation

  • Nuno Palma & Paulo Rosário, 2005. "On the Interdependence of Business Cycles and Economic Growth: The Case of Growth Hysteresis," Development and Comp Systems 0509015, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpdc:0509015
    Note: Type of Document - doc; pages: 23

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    Business Cycles; Growth; Money Neutrality;

    JEL classification:

    • O - Economic Development, Innovation, Technological Change, and Growth
    • P - Economic Systems

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