Product Prices and the OECD CycleIt 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. |
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Page 6
Aart Kraay, Jaume Ventura. Let p be the relative price of L - products in terms of K - products . Using the ideal 1-0 1-0 1 consumer price index as the numeraire , ( p + p ) = 1 , we can write the prices of 9-1 , respectively . Also ...
Aart Kraay, Jaume Ventura. Let p be the relative price of L - products in terms of K - products . Using the ideal 1-0 1-0 1 consumer price index as the numeraire , ( p + p ) = 1 , we can write the prices of 9-1 , respectively . Also ...
Page 8
... relative product prices , there is no reason to believe that this particular channel should account for all of the observed correlations in outputs . To understand the role that commodity trade plays in the creation of the OECD cycle ...
... relative product prices , there is no reason to believe that this particular channel should account for all of the observed correlations in outputs . To understand the role that commodity trade plays in the creation of the OECD cycle ...
Page 9
... relative prices depend on OECD - wide shocks and the cross - country correlations of income growth rates exceed those of the underlying shocks ( See Equations ( 2 ) and ( 3 ) , respectively ) . To sum up , our argument goes as follows ...
... relative prices depend on OECD - wide shocks and the cross - country correlations of income growth rates exceed those of the underlying shocks ( See Equations ( 2 ) and ( 3 ) , respectively ) . To sum up , our argument goes as follows ...
Common terms and phrases
2000 annual rate autarky behavior of product Brownian Motion business cycles capita GDP growth channels of transmission consumer price index consumer with index correlated across countries correlation of annual Corruption cross-country correlation cyclical behavior demand for labour diny Domestic Growth effect is measured Email excluding that country factor bias Fluctuations Foreign Direct Investment G7 Average gross output growth correlations growth with OECD implicit function theorem industrial innovations or shocks joint venture K-products Kydland L-industry labour supply labour-intensive products Non-Oil Shock Sample OECD average growth OECD average real OECD countries OECD cycle OECD growth OECD-wide shocks parameter positive shocks abroad price of L-products prices of labour-intensive productivity shocks protectionist real per capita relative prices relative product prices shocks are positively Solow residual correlations subscription transmission channels transmission of shocks transmitted across countries underlying shocks United Kingdom UNIVERSITY OF VIRGINIA wages in GDP World Bank