The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
What are the drivers of business cycle fluctuations? And how many are there? By
documenting strong and predictable co-movement of real variables during the business cycle
in a sample of advanced economies, we argue that most business cycle fluctuations are
driven by one major factor. The positive co-movement of real output and inflation
convincingly argues for a demand story. We propose a simple statistic that can compare data
and models. Based on this statistic, we show that the recent vintage of structural economic
models has difficulties replicating the stylized facts we document.