The shape of business cycles: a cross-country analysis of Friedman's plucking theory

Emanuel Kohlscheen, Richhild Moessner and Daniel Rees

No 1076, BIS Working Papers from Bank for International Settlements

Abstract: We test the international applicability of Friedman's famous plucking theory of the business cycle in 12 advanced economies between 1970 and 2021. We find that in countries where labour markets are flexible (Australia, Canada, United Kingdom and United States), unemployment rates typically return to pre-recession levels, in line with Friedman's theory. Elsewhere, unemployment rates are less cyclical. Output recoveries differ less across countries, but more across episodes: on average, half of the decline in GDP during a recession persists. In terms of sectors, declines in manufacturing are typically fully reversed. In contrast, construction-driven recessions, which are often associated with bursting property price bubbles, tend to be persistent.

Keywords: business cycle; growth; labour market; unemployment (search for similar items in EconPapers)
JEL-codes: E24 E32 (search for similar items in EconPapers)
Date: 2023-02
New Economics Papers: this item is included in nep-his
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Related works:
Journal Article: The shape of business cycles: A cross‐country analysis of Friedman's plucking theory (2024)
Working Paper: The shape of business cycles: a cross-country analysis of Friedman s plucking theory (2023)
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