A BEJM Advances article.

Abstract

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.

Submitted: June 12, 2001 · Accepted: April 4, 2002 · Published: April 11, 2002

Originally published in Advances in Macroeconomics.

Recommended Citation

Kraay, Aart and Ventura, Jaume (2002) "Product Prices and the OECD Cycle," Advances in Macroeconomics: Vol. 2 : Iss. 1, Article 1.
Available at: http://www.bepress.com/bejm/advances/vol2/iss1/art1