Abstract
Frequent reversals in business cycles pose the question whether country can achieve macroeconomic stability and/or economic growth by coordinating its economic policies. Thus, what is the role of economic policy within the short/long run in amplifying or dampening shocks? Business cycle – economic growth relationship is rather ambiguous and has, thus, attracted controversy. In this sense the (dis)belief that there indeed exists a relationship between the economic growth and business cycle, and their long-run convergence brings us to three important hypotheses that: (1) the evaluation of cycle-growth bond is inconclusive, (2) empirical testing of cycle synchronization is exaggerated and (3) the hypothesis of coupling/decoupling is ambiguous and can be misleading. Economic growth is a complex process and cannot be attributed to a single factor of observance hence this essay is just a tool of theoretical reasoning with firm grip on empirical circumstances that lead us to consider some issues that dwell the “growth economists” these days. Our study suggests a conclusion that discussions on the cycle-growth nexus are far from over, revealing us some remarkable confrontations within empirical domain.
Highlights
The fact that world economy is in persistent stagnation and in major turmoil confirms that the fields of economic development and economic growth have drifted apart, leaving an empty space for the so-called “unbalanced growth”
In this sense thebelief that there exists a relationship between the economic growth and business cycle, and their long-run convergence brings us to three important hypotheses that: (1) the evaluation of cycle-growth bond is inconclusive, (2) empirical testing of cycle synchronization is exaggerated and (3) the hypothesis of coupling/decoupling is ambiguous and can be misleading
Frequent business cycle reversals lead us to think if country can achieve macroeconomic stability and/or economic growth by fine-tuning it economic policies
Summary
Macroeconomist have spent too much time on stabilization and neglected growth, which is much more important issue for macroeconomics to study This is even more important if we notice some recent trends which suggest that economic activity in many developed countries and in most of emerging countries is still suffering from the impacts of the 2008–2009 recessions. As Barro and Sala-i-Martin (2004) point out, recognition of the significance of long-run growth was only a first step economics had to do to escape the “prison” of the neoclassical growth model. One must not forget that short-run disturbances can produce extremely negative effects Business cycles at their peak can be very harmful for the whole economy. The paper presents a recapitulation of the recent scientific contributions in this area
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