On the Interdependence of Business Cycles and Economic Growth: The Case of Growth Hysteresis

Nuno Palma and Paulo Rui Beijinho Rosário ()
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Nuno Palma: Instituto Superior de Economia e Gestao

Development and Comp Systems from EconWPA

Abstract: The purpose of this paper is to give an empirical answer to two related but different questions: First, are economic growth and business cycles interdependent? Second, is money neutral even in the long run? Using data from the United States, this paper finds (using a VAR model) and presents evidence for the interdependence hypothesis, and against the long-run money neutrality hypothesis. The results suggest that counter- cyclical growth models best capture the main channel of influence between cycles and growth. A policy implication is that, if money affects the cycle, it is not neutral even in the long run, and a positive monetary shock may result in hysteresis, having negative growth consequences.

Keywords: Business Cycles; Growth; Money Neutrality (search for similar items in EconPapers)
JEL-codes: O P (search for similar items in EconPapers)
Date: Written 2005-09-15
Note: Type of Document - doc; pages: 23

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