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Most Downloaded Articles
- Comparing Wealth Effects: The Stock Market versus the Housing Market by Case, Karl E./ Quigley, John M. and Shiller, Robert J.
- The Effects of the Great Recession on Central Bank Doctrine and Practice by Bernanke, Ben S.
- How have global shocks impacted the real effective exchange rates of individual euro area countries since the euro’s creation? by Bussiere, Matthieu/ Chudik, Alexander and Mehl, Arnaud
- Employment by age, education, and economic growth: effects of fiscal policy composition in general equilibrium by Heylen, Freddy and Van de Kerckhove, Renaat
Product Prices and the OECD Cycle
Citation Information: Advances in Macroeconomics. Volume 2, Issue 1, ISSN (Online) 1534-6013, DOI: 10.2202/1534-6013.1030, April 2002
- Published Online:
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.