1. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Capitolo 14 Cicli economici

2. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.01 Actual and Trend GDP, Detrended GDP UK: 1963-2002 Fig. 14.01

3. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.1 (a) Actual and trend GDP, UK, 1963-2002 Fig. 14.01 (a) 300 400 500 600 700 800 900 Q1/1963Q1/1969Q1/1975Q1/1981Q1/1987Q1/1993Q1/1999 Billions of 1995 Pounds GDP in 1995 pricesTrend

4. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.1 (b) Real GDP in the UK, deviation from trend (%) Fig. 14.01 (b) Q1/1963Q1/1969Q1/1975Q1/1981Q1/1987Q1/1993Q1/1999 -4.0 -3.0 -2.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 Deviation from Trend (%)

5. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Table 14.1 Descriptive statistics of business cycles 1963-2002 Table 14.01 No. ofAv. cycle lengthMaximumMinimumAv. Deviation completed cycles peak to peakcycle length from midpoint (%) (quarters) UK421.525194.2 France328.038142.0 Germany519.027113.8 Italy520.240102.2 Japan246.573204.0 USA431.342173.4 Source: OECD Main Economic Indicators database, authors' calculations.

6. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.02 Burns-Mitchell Diagrams for Real GDP: Eight countries, 1963-2002 Fig. 14.02

7. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.2 (a) Burns-Mitchell diagrams for real GDP, 1963-2002 Fig. 14.02 (a) UK 0.86 0.88 0.90 0.92 0.94 0.96 0.98 1.00 1.02 1.04 -10-8-6-4-20246810 France 0.88 0.90 0.92 0.94 0.96 0.98 1.00 1.02 1.04 1.06 -10-8-6-4-20246810 Italy 0.86 0.88 0.90 0.92 0.94 0.96 0.98 1.00 1.02 1.04 1.06 -10-8-6-4-20246810 Germany 0.86 0.88 0.90 0.92 0.94 0.96 0.98 1.00 1.02 1.04 -10-8-6-4-20246810

8. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.2 (b) Burns-Mitchell diagrams for real GDP, 1963-2002 Fig. 14.02 (b) Japan 0.82 0.84 0.86 0.88 0.90 0.92 0.94 0.96 0.98 1.00 1.02 -10-8-6-4-20246810 Spain 0.88 0.90 0.92 0.94 0.96 0.98 1.00 1.02 1.04 -10-8-6-4-20246810 US 0.86 0.88 0.90 0.92 0.94 0.96 0.98 1.00 1.02 1.04 1.06 -10-8-6-4-20246810 Canada 0.84 0.86 0.88 0.90 0.92 0.94 0.96 0.98 1.00 1.02 1.04 1.06 -10-8-6-4-20246810

9. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.2 (c) Overall reference cycle average (8 countries) 1963-2002 Fig. 14.02 (c) 0.84 0.88 0.92 0.96 1.00 1.04 -10-8-6-4-20246810

10. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Table 14.2 Business cycle correlations of macroeconomic variables with output 1968-2002 Table 14.02 ConsumptionInvestment Government spendingExportsImportsPricesInflation EU0.860.90-0.150.850.94-0.450.30 Japan0.710.89-0.030.470.64-0.150.18 USA0.880.950.040.320.75-0.750.15 Source: OECD Main Economic Indicators database * Correlation coefficient of seasonally adjusted and detrended values using the Hodrick-Prescott filter.

11. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.03 Leading and Lagging Indicators, 1968-2002 (Eight countries) Fig. 14.03

12. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.3 (a) Changes in inventories Fig. 14.03 (a) -0.6 -0.3 0.0 0.3 0.6 0.9 1.2 -10-8-6-4-20246810

13. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.3 (b) Real stock prices Fig. 14.03 (b) 0.85 0.90 0.95 1.00 1.05 1.10 1.15 -10-8-6-4-20246810

14. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.3 (c) Capacity utilisation rate Fig. 14.03 (c) 0.92 0.94 0.96 0.98 1.00 1.02 -10-8-6-4-20246810

15. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.3 (d) Real effective exchange rate Fig. 14.03 (d) 0.99 1.00 1.01 1.02 1.03 1.04 -10-8-6-4-20246810

16. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.3 (e) Standardised unemployment rate Fig. 14.03 (e) 0.9 1.0 1.1 1.2 1.3 1.4 -10-8-6-4-20246810

17. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.3 (f) Inflation Fig. 14.03 (f) 0.015 0.017 0.019 0.021 0.023 0.025 -10-8-6-4-20246810

18. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.3 (g) Real money balances Fig. 14.03 (g) 0.96 0.98 1.00 1.02 1.04 1.06 1.08 -10-8-6-4-20246810

19. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.3 (h) Short-term nominal interest rate Fig. 14.03 (h) 0.7 0.8 0.9 1.0 1.1 1.2 -10-8-6-4-20246810

20. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.3 (i) Long-term nominal interest rate Fig. 14.03 (i) 0.84 0.88 0.92 0.96 1.00 1.04 -10-8-6-4-20246810

21. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.3 (j) Differential long- vs. short-term interest rate Fig. 14.03 (j) -0.5 0.0 0.5 1.0 1.5 2.0 -10-8-6-4-20246810

22. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Table 14.3 Variability* of key macro variables over the cycle 1964-2002 Table 14.03 GDP (%) ConsumptionInvestmentGovernment purchases ExportsImportsPrices (GDP deflator) EU0.950.862.520.532.443.070.94 Japan1.180.812.430.713.284.440.65 USA1.610.802.680.772.683.120.54 *Variability is measured as the stantard deviation of seasonally adjusted and detrended values using the Hodrick-Prescott filter. Source: OECDMain Economic Indicators andNational Accountsdatabases

23. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.03 Components of Aggregate Spending, 1968-2002 (Eight Countries) Fig. 14.04

24. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.4 (a) Private final consumption expenditure Fig. 14.04 (a) 0.92 0.94 0.96 0.98 1.00 1.02 1.04 1.06 1.08 -10-8-6-4-20246810

25. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.4 (b) Investment (gross fixed capital formation) Fig. 14.04 (b) 0.92 0.94 0.96 0.98 1.00 1.02 -10-8-6-4-20246810

26. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.4 (c) Government final consumption expenditure Fig. 14.04 (c) 0.92 0.94 0.96 0.98 1.00 1.02 1.04 1.06 -10-8-6-4-20246810

27. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.4 (d) Primary current account/GDP Fig. 14.04 (d) -0.005 0.000 0.005 0.010 -10-8-6-4-20246810

28. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.5 Deterministic cycles in the multiplier-accelerator model Fig. 14.05

29. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.5 (a) Deterministic cycles: dampened variant -8 -6 -4 -2 0 2 4 6 8 020406080100 Time Output Fig. 14.05(a)

30. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.5 (b) Deterministic cycles: explosive variant -20 -15 -10 -5 0 5 10 15 20 0 406080100 Time Output Fig. 14.05(b)

31. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.5 (c) Deterministic cycles: perpetual variant -8 -6 -4 -2 0 2 4 6 8 020406080100 Time Output Fig. 14.05(c)

32. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.6 Impulse-propagation mechanism Fig. 14.06

33. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.6 Impulse-propagation mechanism Economic System Cycles Random Shocks Fig. 14.06

34. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.7 Impulses and propagations: an example 200 random shocks, t (normal distribution, mean=0, st.dev.=0.3) Filtered shocks: Y t = 1.3Y t-1 –0.4Y t-1 + t Fig. 14.07 -2 0 1 2 -3 -2 0 1 2 3

35. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.8 Propagating mechanism in AS-AD framework Fig. 14.08

36. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.8 Left: AS and AD Right: Just observations Fig. 14.08

37. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.8 There is an increase in the rate of money growth Fig. 14.08

38. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.8 Core inflation adjusts and AS shifts upwards Fig. 14.08

39. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.8 Lagged responses of AD to the change in money growth leads to further shift of AD Fig. 14.08

40. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.8 Further upward shift in core inflation and AS Fig. 14.08

41. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.8 Fall in output from C to D leads to drop in AD´´... Fig. 14.08

42. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.8 Economy followed a loop in response to change in rate of growth of the money supply When >, M/P falling so AD shifts left. When <, M/P rising so AD shifts right. When output gap is positive, > core inflation (AS has a positive slope), so AS shifts up. When output gap is negative, < core inflation, so AS shifts down. Fig. 14.08

43. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.8 Higher inflation and high output case When > ´, M/P falling so AD shifts left. When < ´, M/P rising so AD shifts right. When output gap is positive, > core inflation (AS has a positive slope), so AS shifts up. When output gap is negative, < core inflation, so AS shifts down. Fig. 14.08

44. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.8 Higher inflation, low output case When > ´, M/P falling so AD shifts left. When < ´, M/P rising so AD shifts right. When output gap is positive, > core inflation (AS has a positive slope), so AS shifts up. When output gap is negative, < core inflation, so AS shifts down. Fig. 14.08

45. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.8 Lower inflation, low output case When > ´, M/P falling so AD shifts left. When < ´, M/P rising so AD shifts right. When output gap is positive, > core inflation (AS has a positive slope), so AS shifts up. When output gap is negative, < core inflation, so AS shifts down. Fig. 14.08

46. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.8 Lower inflation, high output case When > ´, M/P falling so AD shifts left. When < ´, M/P rising so AD shifts right. When output gap is positive, > core inflation (AS has a positive slope), so AS shifts up. When output gap is negative, < core inflation, so AS shifts down. Fig. 14.08

47. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.9 Demand shock to West Germany (Unification) Fig. 14.09

48. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.9 1994 1993 0.0 1.0 2.0 3.0 4.0 5.0 -2%-1%0%1%2%3% Output (deviations from trend) Inflation (%) Counterclockwise loop observed in W. Germany Fig. 14.09 1992 1991 1990

49. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.10 Oil price shock of 1973-4: Supply shock Fig. 14.10

50. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.10 (a) Riding out an adverse supply shock without an AD response Output gap Inflation A AD AS B AS´ AS A A Fig. 14.10(a) 0

51. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 1977 0 5 10 15 20 25 -3%-2%-1%0%1%2%3%4%5% Output (deviations from trend) Inflation (%) Figure 14.10 (c) United Kingdom. Oil price shock 1973-74. Fig. 14.10(c) 1976 1975 1974 1973

52. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.10 (a) Responding to adverse supply shock with AD policy (militant anti-inflationist) Inflation A AD C AS AD´ AD AS´ AS A A D Fig. 14.10(a) Output gap0

53. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.10 (b) 1977 0 2 4 6 8 10 12 14 -3%-2%-1%0%1%2%3%4%5% Output (deviations from trend) Inflation (%) Switzerland. Oil price shock 1973-74. Fig. 14.10(b) 1976 1975 1974 1973

54. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Table 14.4 Variance of GDP decomposed (percent) Source: Gerlach and Smets (1995) Technical note: One year after shock, 1979:1–1993:4 DemandSupplyMoneyTotal Canada543412100 France19801100 Germany66313100 Italy405110100 Japan11872100 UK32644100 USA20718100

55. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.12 The Solow Residual and GDP Germany, 1961-1993 Fig. 14.11

56. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.11 W. Germany: Solow residual and GDP growth -2 0 1 2 3 4 5 6 7 8 196119651969197319771981198519891993 Percent per year Output Solow residual Fig. 14.11

57. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.12 A productivity shock that increases the marginal products of capital and labour Fig. 14.12

58. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.12 When labour supply is inelastic... Real interest rate Capital stock Real wage Labour A´ A A L S(inelastic)...relatively large change in real wage Fig. 14.12

59. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.12 Real interest rate Capital stock Real wage Labour A A A´´ L S(elastic) When labour supply is elastic......relatively small change in real wage A´...and a large change in employment! Fig. 14.12

60. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.13 Intertemporal substitution of labour Fig. 14.13

61. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.13 Intertemporal substitution of labour Leisure today Leisure tomorrow A B Current wage increase......(as drawn) leads to substitution of less leisure today for more leisure tomorrow. Fig. 14.13

62. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.14 Cyclical patterns in the labour market, G8 countries, 1965-2003 Fig. 14.14

63. Burda, WyploszMACROECONOMIA: UNA PROSPETTIVA EUROPEA ©EGEA 2006 Figure 14.14 Cyclical patterns in the G8 labour markets Fig. 14.14