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Interaction between Business Cycles and Economic Growth

June 20, 2018
Sohei Kaihatsu*1
Maiko Koga*2
Tomoya Sakata*3
Naoko Hara*4

Abstract

In the aftermath of the recent global financial crisis, advanced economies have faced sluggish recoveries or long-lasting economic slowdowns. This experience has challenged the conventional dichotomy of business cycles and economic growth, which has long been central to macroeconomic analysis. Against this backdrop, we review the literature looking at the relationship between business cycles and economic growth. This study consists of three parts. First, we provide basic ideas about the relationship of business cycles and economic growth, and a simple empirical analysis on economic growth rates in advanced economies. Second, we survey studies which look at the effects of business cycles on economic growth. Specifically, we focus on hysteresis effects caused by labor market structure, firm activity and fiscal policy. Third, we review the literature looking at the effects of economic growth on business cycles, through mechanisms such as technological progress and population ageing.

JEL classification
E32, O40

Keywords
Business cycles, economic growth, hysteresis

This paper was originally prepared for the conference "A New Perspective of Macroeconomic Analysis: Interaction between Business Cycles and Economic Growth" (the Seventh Joint Conference Organized by the University of Tokyo Center for Advanced Research in Finance and the Bank of Japan Research and Statistics Department). We would like to thank Kosuke Aoki, Takuji Fueki, Hibiki Ichiue, Takushi Kurozumi, Takashi Nagahata, Toshitaka Sekine, Shigenori Shiratsuka, Toshinao Yoshiba as well as the staff of the Bank of Japan for their helpful comments. The opinions expressed here, as well as any remaining errors, are those of the authors and should not be ascribed to the Bank of Japan.

  1. *1Research and Statistics Department, Bank of Japan
    E-mail : souhei.kaihatsu@boj.or.jp
  2. *2Research and Statistics Department, Bank of Japan
    E-mail : maiko.koga@boj.or.jp
  3. *3Research and Statistics Department, Bank of Japan
    E-mail : tomoya.sakata@boj.or.jp
  4. *4Research and Statistics Department, Bank of Japan
    E-mail : naoko.hara@boj.or.jp

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